The impact of family owners’ monitoring on CEO turnover decisions and the role of trust

Davide Rizzotti (), Claudia Frisenna and Roberta Mazzone
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Davide Rizzotti: University of Catania
Claudia Frisenna: University of Messina
Roberta Mazzone: University of Catania

Journal of Management & Governance, 2017, vol. 21, issue 3, No 3, 599-621

Abstract: Abstract Even though there is clear evidence that large shareholders play an effective monitoring role over poorly-performing CEOs, the monitoring of family owners is yet quite unexplored. This study investigates the impact of family ownership on the CEO turnover-performance sensitivity, examining two potential factors that can affect the ability of the family owners in ensuring a prompt replacement of an underperforming CEO. First, we examine whether the monitoring of family owners is weakened by the existence of family ties with CEO. Second, we investigate whether the monitoring of family owners over professional CEOs is affected by the cultural propensity to trust or distrust a stranger. Our findings show that family owners are able to ensure a prompt replacement of an underperforming CEO only when the CEO is not a family member but rather an outside professional. Moreover, we find that the effectiveness of the family’s monitoring over professional CEO is weaker in environments characterized by the cultural propensity to distrust a stranger, rather than in contexts characterized by the cultural feeling to trust an outsider.

Keywords: CEO turnover; Family firm; Trust on strangers; Professional CEO; Agency conflicts (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s10997-016-9367-z

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