Agency, Firm Growth and Managerial Turnover

Anderson, Ronald W.; Bustamante, Maria Cecilia; Guibaud, Stéphane; Zervos, Mihail

doi:10.2139/ssrn.2081685

Cited by 11 publications

(14 citation statements)

References 57 publications

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“…Positive severance upon growth‐induced dismissal would arise as part of the optimal contract if the availability of a growth opportunity were privately observed by the incumbent manager (see Anderson, Bustamante, and Guibaud ()). This result is reminiscent of Eisfeldt and Rampini () and Inderst and Mueller (), although severance pay serves to incentivize the incubent to reveal bad news in their setups.…”

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confidence: 99%

Agency, Firm Growth, and Managerial Turnover

Anderson

Bustamante

Guibaud

2017

The Journal of Finance

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We study the relation between firm growth and managerial incentive provision under moral hazard when a long-lived firm is operated by a sequence of managers. In our model, firms replace their managers not only upon poor performance to provide incentives, but also when outside managers are at a comparative advantage to lead the firm through a new growth phase. We show how the optimal contract can be implemented with a system of deferred compensation credit and bonuses, along with dismissal and severance policies. Firms with better investment prospects have higher managerial turnover and rely on more front-loaded compensation schemes. Growthinduced turnover can result in positive severance if the principal needs to incentivize the manager to truthfully report the arrival of a growth opportunity. Realized firm growth depends jointly on the exogenous arrival of growth opportunities and the severity of the moral hazard problem. We also find a new component of agency costs due to the spillover effect of the tenure of the incumbent manager onto the present value of future managers' compensation.

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confidence: 99%

Agency, Firm Growth, and Managerial Turnover

Anderson

Bustamante

Guibaud

2017

The Journal of Finance

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“…For example, some studies indicated a bankruptcy risk when there is a change in CEO (Mokarami and Motefares, 2013; Darrat et al , 2016). Whereas, other studies postulate that there are some positive benefits from a CEO turnover where CEO opportunism is controlled, and there are improved growth prospects (Cheng et al , 2014; Anderson et al , 2018).…”

Section: Resultsmentioning

confidence: 99%

“…CEO characteristics and firm performance have been a topic of increased interest in both academic and popular literature. Such interest gained momentum from the assumption that CEOs have a strategic role to play in the growth of a firm given the power they wield on decision-making and key operations of a firm (Saidu, 2019; Cucculelli, 2018; Anderson et al , 2018; King et al , 2016; Darrat et al , 2016). The determining factor of the CEO's cognitive behaviour, bias and value stem from their educational background, age and work experience (Hambrick and Mason, 1984).…”

Section: Introductionmentioning

confidence: 99%

An examination of CEO power with board vigilance as a catalyst for firm growth in South Africa

Sewpersadh

2019

MBE

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Purpose The recent collapse of the corporate giant Steinhoff in South Africa (SA) has highlighted the risks of a dominant Chief Executive Officer (CEO) and an ineffective governing board. For this reason, the purpose of this paper is to scrutinize the influence of CEO power attributes and independent governing boards on the growth of a Johannesburg stock exchange-listed firm. Design/methodology/approach The purpose of this paper is to answer the research question “Under the monitoring role of the board, what CEO attributes, theoretically and in practice preeminent successful firm growth strategies?” This question was answered by examining 130 companies over six years using the econometric methodology of generalized least squares and ordinary least squares with the specific inclusion of generalized method of moments estimation due to its efficiency in controlling for unobserved heterogeneity, endogeneity, autocorrelation, heteroscedasticity, amongst others. The proxies for CEO power are CEO tenure, turnover and professional skills as well as the explanatory variable of board vigilance. The response variable was firm growth. Findings This study found that CEO tenure is negatively correlated with firm growth indicating that long-tenured CEOs may stagnate the firm's growth. Furthermore, CEO turnover was positively correlated with firm growth indicating that a new CEO may bring innovative strategies that link to this study's finding on CEO tenure. The membership of CEOs to accounting professional bodies and board vigilance are also positively correlated to firm growth. Practical implications SA firms' growth policy does not solely depend on the neoclassical fundamental determinants of profitability, net worth, and cash flows. Since the value relevance of assessing CEO attributes as well as board vigilance in the SA market has proved to be very significant and will contribute to future decision making on growth strategies. This study innovatively illustrates the different drivers of firm growth, which is distinct from the normal macroeconomic indicators. The practical contribution of the study lies in the fact that organizations now discern which CEO attributes contribute to sustainability and profitability. Social implications The current depressed economic environment has several negative implications for the citizens of SA. The rising unemployment levels and inflation has deteriorated living conditions. For the economy to recover, SA needs its listed companies to remain strong performers to protect stakeholder interests and attract investments. The people responsible for steering the companies through this difficult time are the CEOs with the governing board protecting the public interest. This study examines these two important constructs concerning firm growth. Originality/value This study uniquely used a firm growth variable as opposed to the multitude of studies that used firm performance variables. Furthermore, this study's robustness was bolstered by an extensive theoretical framework employed to examine the value of a CEO as a firm growth stimulator. The period of this study is also unique as it examines firms in the aftermath of the global recession of 2008. This study provides a fresh perspective on firm growth indicators and has key implications for policymakers, stakeholders and regulatory establishments.

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“…In a recent study, it has been demonstrated that CSR disclosure and agency cost are not related ( Zhou et al, 2018 ). Meanwhile the firms’ performance has a positive impact on the CSR ( Erhemjamts et al, 2013 ), while agency cost mitigates the firms’ growth ( Anderson et al, 2018 ). Comprehensively, CSR activity agitates the problem that is caused by spending extra funds by the upper echelon ( McGuinness et al, 2017 ).…”

Section: Literature Review and Hypothesis Formulationmentioning

confidence: 99%

Unveiling the Effectiveness of Agency Cost and Firms’ Size as Moderators Between CSR Disclosure and Firms’ Growth

2020

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The excellence of corporate governance in companies lies in their ability to adopt the corporate social responsibility (CSR), which enhances their growth. This study examines the effect of agency cost, firm size, and CSR disclosure on the firms’ growth. Specifically, the study analyzed the agency cost and firms’ size as the moderators that influence the firms’ performance asymmetrically. In its approach, the study compiled data of 300 Pakistani listed companies, which have a significant concern with CSR for the period 2010–2018. Using the 2SLS and GMM instrumental panel regressions, our empirical results show that the agency cost is detrimental to the firms’ growth. In contrast, the firms’ size boosts the firms’ growth. Moreover, the growth of firms with leverage declines and the presence of independent directors improves the firms’ growth.

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Agency, Firm Growth and Managerial Turnover

Cited by 11 publications

References 57 publications

Agency, Firm Growth, and Managerial Turnover

Agency, Firm Growth, and Managerial Turnover

An examination of CEO power with board vigilance as a catalyst for firm growth in South Africa

Unveiling the Effectiveness of Agency Cost and Firms’ Size as Moderators Between CSR Disclosure and Firms’ Growth

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