Ownership Structure, Firm Performance and Top Executive Change: An Analysis of UK Firms

Abstract

The results of this paper reveal a significantly negative relationship between the equity stake owned by a senior executive and the likelihood that this executive will be removed from office. We also establish the existence of a strong positive relationship between poor company performance and the likelihood that the top managers responsible will be forced out of their firms; this forced departure only tends to occur when the managers' stake in the firm is less than 1%; as the level of ownership rises, managers become increasingly entrenched in their posts. The stock market reaction to management change is greatest (a) when the departure is unexpected and (b) when the dismissed executive owns more than 5% of the equity of his company. This study also examines the influence of other aspects of ownership structure and board composition upon the likelihood of a top executive dismissal. Copyright Blackwell Publishers Ltd 1998.

Corporate governance, accounting and finance: A review

“…employ 2SLS to address potential endogeneity and find that, conditional on poor firm performance, the probability of disciplinary management turnover increases with director ownership and board independence in the United States. In contrast, for UK firms, Dahya et al (1998) report it is more likely that the top manager will be forced out of their firm as a result of the poor firm performance when the manager's stake in the firm is <1 per cent. As the level of ownership rises, managers become increasingly entrenched in their posts.…”

Managerial ownership and performance

“…As Shleifer and Vishny (1986) suggest, large shareholders have both the incentive and the ability to monitor management, protecting, hence, their investment (see inter alia Dahya et al, 1998 for an extensive discussion for the importance of ownership concentration in corporate governance of UK companies).…”

Gobierno Corporativo Y Reemplazo De Presidentes De Los Consejos De Administración en México

“…Según Hillier y McColgan (2004), la mayoría de estas compañías contratan a miembros de sus familias como ejecutivos y directores de las mismas, por lo que el nepotismo es una característica importante en este tipo de organizaciones. De acuerdo a Lausten (2002) y Volpin (2002, bajo estas condiciones la relación entre el reemplazo y el desempeño de la fi rma es débil, lo cual evidencia el atrincheramiento (ver Denis et al, 1997;Dahya et al, 1998y Hillier y McColgan, 2004. Esto lo ejemplifi can Tosi et al (2003) al mostrar que los Directores Generales, que no son miembros de la familia, tienen mayor probabilidad de reemplazo que los ejecutivos que sí forman parte de la misma.…”