CEO turnover and firm performance,
evidence from Thailand
Parichart Rachpradit, John C.S. Tang and Do Ba Khang
Abstract
Purpose – This paper seeks to examine the relationship between chief executive officer (CEO) turnover
and firm performance and the moderating effects of ownership structure and board structure with
respect to listed non-financial companies in Thailand.
Design/methodology/approach – Logit model is employed to analyze the relationship between CEO
turnover and firm performance.
Findings – The paper finds that both ownership and board structure have effects on the relationship
between CEO turnover and firm performance. The probability of CEO turnover is lower when the firm is
controlled by family, the CEO is part of the controlling family, and board size is larger. Contrary to
previous studies, sensitivity of CEO turnover to firm performance is higher with the presence of CEO
duality and lower degree of board independence. When a CEO continues to work beyond retirement
age, the probability of turnover is not associated with firm performance.
Originality/value – This study provides evidence that CEO duality and low independent board is not
necessarily bad corporate governance practice for Thai companies and would be of interest to
regulatory bodies, practitioners, and academic researchers.
Keywords Corporate governance, Boards of directors, Ownership, Chief executives,
Corporate ownership, Thailand
Paper type Research paper
1. Introduction
Previous studies find that majority of public companies in most parts of the world are controlled
by family (La Porta et al., 1999; Claessens et al., 2000; and Faccio and Lang, 2002). Economic
theories posit that family firms play the role as second-best solution to imperfection of financial
markets and the lack of managerial talent in developing countries (Burkart et al., 2003; Caselli
and Gennaioli, 2005). The theories assume that trusts among family ties should (partially)
solve agency problem between shareholders (principal) and managers (agent).
Researchers examine agency problem in the firms through various proxies. Those proxies
include firm performance, CEO compensation, anti-takeover provisions, likelihood of frauds,
and the relationship between the probability of Chief Executive Officer (CEO) turnover and
firm performance. One of the frequently observed proxies is the relationship between the
probability of CEO turnover and firm performance. The association between the probability
of CEO turnover and firm performance implies that there is a mechanism providing
motivation for the CEO to align his interests to those of shareholders. The relationship is
generally found to be negative (Warner et al., 1988; Weisbach, 1988; Morck et al., 1989;
Murphy and Zimmerman, 1993; Kang and Shivdasani, 1995; Denis et al., 1997; DeFond and
Park, 1999; Renneboog, 2000; Huson et al., 2001, 2004; Lausten, 2002; Brunello et al., 2003;
and Easterwood and Raheja, 2007).
However, the likelihood of CEO turnover following poor performance is found to be
influenced by board structure and ownership structure of the firm. In the case of board
PAGE 164
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CORPORATE GOVERNANCE
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VOL. 12 NO. 2 2012, pp. 164-178, Q Emerald Group Publishing Limited, ISSN 1472-0701 DOI 10.1108/14720701211214061
Parichart Rachpradit is
Lecturer at the Department
of Business Management,
Asian Institute of
Technology, Pitsanuloke,
Thailand. John C.S. Tang
and Do Ba Khang are
based at the School of
Management, Asian
Institute of Technology,
Pitsanuloke, Thailand.
Received: March 2010
Revised: March 2010
Accepted: June 2010