CEO Turnover and Firm Performance in Russia

Effective corporate governance mechanisms ensure that poorly performing chief executive officer (CEO) is replaced. Since firm performance is considered to be the most accurate measure of CEO competence, it is expected to be the key factor underlying executive turnover. Although numerous studies have established robust inverse relationship between the probability of managerial dismissal and prior financial results of the company in developed economies, there is still much controversy about whether this finding holds true for economies in transition. Present paper addresses the question of corporate governance quality in Russia. It provides new evidence on CEO turnover–performance sensibility and reveals characteristics which contribute to this relation via empirical analysis of a novel dataset covering Russian joint-stock companies from 2007 to 2016. The main finding is that CEOs are indeed fired on the grounds of bad performance, captured by return on assets, profit margin, sales growth, and, to a lesser extent, labor productivity, although the magnitude of this link is economically modest. Status of a listed company and a greater number of directors on supervisory board are found to enhance oversight intensity. On the contrary, personal shareholdings of CEO tend to detoriate monitoring quality, denoting a negative role of entrenched executives. Longer incumbency and considerable equity stake of insiders imply lower probability of CEO resignation, while the effect of state involvement and ownership concentration is reverse. At the same time, neither of these factors significantly affects turnover responsiveness to performance. Overall, analysis suggests that corporate governance in Russia is, at least to a certain extent, efficient, regardless of evident agency problems within companies.