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CEO and Director Turnover in Venezuela

  • Urbi Garay
  • Maximiliano González

The aim of this study is to achieve a better understanding of corporate governance structures and mechanisms outside the United States by looking at a specific emerging economy: Venezuela. We first build a corporate governance practices index for publicly listed companies in this country; the overall results indicate that Venezuela exhibits relatively low corporate governance scores. Using this limited sample, we are able to find a positive relation between this corporate governance index and its sub-components and alternative measures of value (Tobin`s q, price-to-book ratio, and dividend payout). In this environment, together with an underdeveloped financial market, a weak legal system, poor law enforcement, and high ownership concentration, we then address the question of whether the existing corporate governance system works at all in Venezuela. In particular, we are interested in studying the following two questions, which constitute a necessary condition for any corporate governance system to work. First, are poorly-performing CEOs more likely to be removed compared to well-performing CEOs? Second, is the role of the board to monitor the CEO or merely to serve as an advisor? To this end, we collected detailed data from 51 Venezuelan firms from 1984 to 2002. After controlling for characteristics related to CEO, board, ownership, firms, and time periods, we find that poor financial performance significantly increases the likelihood of CEO and director turnover. The empirical evidence is also consistent with the idea that directors in Venezuela play mainly an advisory role and not a monitoring role of the CEO.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 3214.

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Date of creation: Nov 2005
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Handle: RePEc:idb:wpaper:3214
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  1. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January.
  2. 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.
  3. Himmelberg, C.P. & Hubbard, R.G. & Palia, D., 1997. "Understanding the Determinants of Mangerial Ownership and the Link Between Ownership and Performance," Papers 97-21, Columbia - Graduate School of Business.
  4. Demirguc-Kunt, Asli & Levine, Ross, 1995. "Stock market development and financial intermediaries : stylized facts," Policy Research Working Paper Series 1462, The World Bank.
  5. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April.
  6. 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-.
  7. Gibson, Michael S., 2003. "Is Corporate Governance Ineffective in Emerging Markets?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 231-250, March.
  8. Claessens, Stijn & Djankov, Simeon, 1999. "Enterprise performance and management turnover in the Czech Republic," European Economic Review, Elsevier, vol. 43(4-6), pages 1115-1124, April.
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