The impact of changes in firm performance and risk on director turnover
Purpose – The purpose of this paper is to show that director turnover varies in predictable and intuitive ways with director incentives. Design/methodology/approach – The paper uses a sample of 51,388 observations pertaining to 13,084 directors who served 1,065 firms during the period 1997-2004. The data are obtained from RiskMetrics, Compustat, Execu-Comp, CRSP, IBES, and the Corporate Library databases. Portfolio analysis, logit, and GLIMMIX regression analysis are used for the tests. Findings – The paper provides evidence that directors are more likely to leave when firm performance deteriorates and the firm becomes riskier. While turnover increasing as firm performance deteriorates is consistent with involuntary turnover, directors are also more likely to leave in advance of deteriorating performance. The latter is consistent with directors having inside information and acting on that information to protect their wealth and reputation. When inside and outside director turnover is contrasted, the association between turnover and performance is stronger for inside directors. Research limitations – Since data are obtained from multiple databases, the sample may be biased in favor of larger firms. The results may, therefore, not be applicable to smaller firms. To the extent that the story is unable to differentiate between voluntary and involuntary director turnover, the results should be interpreted with caution. Originality/value – Even though extant research has looked extensively at the determinants of CEO turnover, little has been written on director turnover. Director turnover is an important topic to study, since directors, especially outside directors, possess a significant oversight role in the corporation.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 9 (2010)
Issue (Month): 3 (August)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=raf Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Masako Darrough & Srinivasan Rangan, 2005. "Do Insiders Manipulate Earnings When They Sell Their Shares in an Initial Public Offering?," Journal of Accounting Research, Wiley Blackwell, vol. 43(1), pages 1-33, 03.
- Huson, Mark R. & Malatesta, Paul H. & Parrino, Robert, 2004. "Managerial succession and firm performance," Journal of Financial Economics, Elsevier, vol. 74(2), pages 237-275, November.
- Balsam, Steven & Miharjo, Setiyono, 2007. "The effect of equity compensation on voluntary executive turnover," Journal of Accounting and Economics, Elsevier, vol. 43(1), pages 95-119, March.
- Warner, Jerold B. & Watts, Ross L. & Wruck, Karen H., 1988. "Stock prices and top management changes," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 461-492, January.
- Anil Shivdasani & David Yermack, 1998.
"CEO Involvement in the Selection of New Board Members: An Empirical Analysis,"
New York University, Leonard N. Stern School Finance Department Working Paper Seires
98-059, New York University, Leonard N. Stern School of Business-.
- Anil Shivdasani & David Yermack, 1999. "CEO Involvement in the Selection of New Board Members: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 54(5), pages 1829-1853, October.
- Ravina, Enrichetta & Sapienza, Paola, 2007.
"What Do Independent Directors Know? Evidence from Their Trading,"
CEPR Discussion Papers
6046, C.E.P.R. Discussion Papers.
- Enrichetta Ravina & Paola Sapienza, 2010. "What Do Independent Directors Know? Evidence from Their Trading," NBER Chapters, in: Corporate Governance National Bureau of Economic Research, Inc.
- Enrichetta Ravina & Paola Sapienza, 2006. "What Do Independent Directors Know? Evidence from Their Trading," NBER Working Papers 12765, National Bureau of Economic Research, Inc.
- Farrell, Kathleen A. & Hersch, Philip L., 2005. "Additions to corporate boards: the effect of gender," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 85-106, March.
- DeFond, Mark L. & Jiambalvo, James, 1994. "Debt covenant violation and manipulation of accruals," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 145-176, January.
- Benjamin E. Hermalin & Michael S. Weisbach, 1996.
"Endogenously Chosen Boards of Directors and Their Monitoring of the CEO,"
_004, University of California at Berkeley, Haas School of Business.
- Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, vol. 88(1), pages 96-118, March.
- Benjamin E. Hermalin & Michael S. Weisbach, 1996. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," Microeconomics 9602001, EconWPA, revised 09 Oct 1996.
- Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January.
- Bernard S. Black & Brian R. Cheffins & Michael Klausner, 2006. "Outside Director Liability: A Policy Analysis," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(1), pages 5-20, March.
- Suraj Srinivasan, 2005. "Consequences of Financial Reporting Failure for Outside Directors: Evidence from Accounting Restatements and Audit Committee Members," Journal of Accounting Research, Wiley Blackwell, vol. 43(2), pages 291-334, 05.
- repec:oup:qjecon:v:118:y:2003:i:1:p:107-155 is not listed on IDEAS
- Parrino, Robert, 1997. "CEO turnover and outside succession A cross-sectional analysis," Journal of Financial Economics, Elsevier, vol. 46(2), pages 165-197, November.
- Denis, David J. & Denis, Diane K. & Sarin, Atulya, 1997. "Ownership structure and top executive turnover," Journal of Financial Economics, Elsevier, vol. 45(2), pages 193-221, August.
- Benston, George J., 1985. "The self-serving management hypothesis : Some evidence," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 67-84, April.
- Daniel Bergstresser & Thomas Philippon, 2003.
"CEO incentives and earnings management,"
862, Federal Reserve Bank of Chicago.
When requesting a correction, please mention this item's handle: RePEc:eme:rafpps:v:9:y:2010:i:3:p:244-263. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.