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Firm Performance and CEO Turnover in Private Family Firms: Evidence from Norway

Ahmed, Dhia Talal; Hellerslia, Gaute Igland
Master thesis
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2287438.pdf (2.959Mb)
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http://hdl.handle.net/11250/2621495
Utgivelsesdato
2019
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  • Master of Science [1116]
Sammendrag
In this paper, we examine the relationship between firm performance and CEO

turnover within the dynamics of private firms. More specifically, we will compare

and analyse the differences of CEO turnover in private family firms and private

non-family firms. Our hypotheses revolve around our research question “Is there a

difference between private non-family firms and private family firms in the

sensitivity of CEO turnover to prior firm performance, and, if so, is it a result of a

difference in monitoring?” Each hypothesis builds on existing theories, such as

the classical relationship between firm performance and CEO turnover, agency

theory and the stewardship versus stagnation perspective. At the heart of our

thesis is the analysis of differences in private non-family and private family firms

regarding their CEO turnover to performance sensitivity. Surprisingly, we find

that private family firms are significantly more likely to replace their CEO if

performance is bad than private non-family firms, as measured by lagged return

on assets (ROA). The difference becomes even starker when applying Propensity

Score Matching, further supporting our results. The results are robust to different

empirical models and alternative performance measures. Our findings are

surprising given the well-established longer-term perspective in family firms,

which includes less frequent CEO turnovers on average. Thus, we believe our

results can spur additional discussion on a still limited literature on CEO turnover

in private family firms. Moreover, we analyse whether the CEO turnover decision

is a result of better monitoring. We find that private family firms are less likely to

fire its CEO based on exogenous shocks as measured by industry-wide shocks,

and that firm performance increases significantly more in private family firms

than in private non-family firms following a turnover. Additionally, we find a

significantly negative relationship between prior firm performance and family

firms hiring an outside CEO. In our analysis, we use a comprehensive sample of

182 973 private Norwegian non-family firms and 163 758 private Norwegian

family firms retrieved from the CCGR database. The logistic model is employed

to analyse the relationship between CEO turnover and firm performance, while

the GLS linear regression is used to examine post-CEO turnover performance.

Lastly, we employ the two-stage regression model to assess relative performance.
Beskrivelse
Masteroppgave(MSc) in Master of Science in Finance/(Financial Economics) - Handelshøyskolen BI,2019
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Handelshøyskolen BI

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