Fire or Befriend? The Role of Ownership Structure in CEO Turnover Decisions of Controlling Shareholders

• In Event: Forum on the Structure of Communication

Abstract

We study whether and when do firms controlled by large shareholders fire CEOs for poor firm performance. Using a novel detailed dataset of East Asian firms, we find that CEO turnover is strongly sensitive (insensitive) to firm performance when the shareholder’s control and cash-flow rights are aligned (diverge). We show that control divergence is a particularly influential determinant of CEO turnover-performance sensitivity for family firms, especially those managed by professional CEOs. However, we find that state-controlled companies fail to fire underperforming CEOs irrespective of the firms’ ownership structure.

Authors

• C.S. Agnes Cheng, The Hong Kong Polytechnic University

• Jinshuai Hu, Xiamen University

• David Pecha, University of Southern Denmark

• Walid Saffar, The Hong Kong Polytechnic University