Executive Turnover and Outside Directors on Two-Tiered Boards

Abstract

This paper examines the determinants of executive turnover on two-tiered boards, emphasizing the monitoring role of supervisory board members with simultaneous outside directorships. Based on a unique sample of executives from large German firms, we find that outside supervisory board members generally increase executive turnover at the firms they monitor. This influence is especially pronounced when outside supervisory board members are simultaneously active as managers themselves and capital control is rather weak. These results suggest that external managers on supervisory boards enhance the monitoring intensity and substitute for weak capital control in the absence of large shareholders. Copyright

Women on the board and executive tenure

“…In addition, outside directors increase the likelihood of external succession (Balsmeier, Buchwald, & Zimmermann, ; Borokhovich, Parrino, & Trapani, ; Huson, Parrino, & Starks, ). Balsmeier, Buchwald, and Dilger () find a substitutive relationship between capital control and outside directors with regard to executive turnover, and Gregory‐Smith, Thompson, and Wright () show that the risk of forced departures decreases from the fifth year in office, indicating that CEOs are more likely to entrench themselves with ongoing tenure.…”

Competition, Outside Directors and Executive Turnover: Implications for Corporate Governance in the EU

“…The latter finding is surprising at a first glance considering that managerial discretion is more pronounced in the absence of controlling shareholders (e.g. Balsmeier, Buchwald and Dilger, or Hart, for a discussion). However, the result is in line with Aghion, van Reenen and Zingales () who argue and find evidence that institutional owners protect CEOs from being fired after a short‐term decline in profitability.…”

“…Because it is likely that firms differ in their corporate employment practice, we relaxed the assumption of identical baseline hazards by stratifying all model specifications on the firm‐level. This approach controls for unobserved heterogeneity across firms but also across industries and countries (Balsmeier, Buchwald and Dilger, ). The test for the proportional hazard assumption was conducted for each covariate and the global model and was insignificant for all model specifications (Hosmer, Lemeshow and May, ).…”

“…Recent evidence for a sample of German firms also leads to a rather positive assessment of outside directors in terms of monitoring. Balsmeier, Buchwald and Dilger () find that outside directors who hold a parallel executive position significantly increase turnover of the executives they supervise. Further, they find that the relation depends on ownership concentration.…”

“…Another widely used predictor of director turnover is the capital structure. It is argued that capital control is relatively weak in the absence of large blockholders increasing executives' discretion for opportunistic behavior (Balsmeier, Buchwald and Dilger, 2015). To account for ownership dispersion, we use a dummy variable (Block) if one or more shareholders own a fraction of at least 25% of the voting rights (Czarnitzki and Kraft, 2009).…”