CEO turnover compensation and corporate performance evidence on the monitoring role of blockholders

Abstract

With the broader objective of analysing the role of blockholders in influencing corporate decisions and policies as well as the corporate performance of the SandP BSE 500 Index companies, the study investigates the impact of corporate performance on Chief Executive Officer (CEO) turnover. The changes in the corporate performance measures post-CEO turnover are also assessed to evaluate the quality of the CEO turnover decision taken by the firms. Further, the impact of the blockholder s presence on the CEO turnover-performance relationship, CEO compensation, and corporate performance is studied. Finally, the relationship between abnormal stock returns around the CEO turnover announcements and blockholder s presence is explored. The analysis has been carried out using univariate, bivariate, and multivariate techniques. Overall, the results showed no significant relationship between corporate performance and CEO turnover. Moreover, weak evidence for declining performance prior to the CEO turnover and improvement following the turnover was found. Furthermore, the stock market reacts significantly and positively to the announcements of CEO turnover, suggesting that investors can utilise these announcements to earn substantial gains by purchasing and selling the stocks of companies making such announcements. However, no significant difference was found across the blockholder groups except for outsiders. In addition, the blockholders are primarily playing an insignificant role in strengthening the turnover-performance relationship, limiting excess payments to the CEO, and enhancing corporate performance. Thus, research results provide important implications for academicians, corporations, regulators, and investors. newline