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- Publisher Website: 10.1111/j.1467-8683.2010.00834.x
- Scopus: eid_2-s2.0-79955736186
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Article: CEO Turnover in Private Equity Sponsored Leveraged Buyouts
Title | CEO Turnover in Private Equity Sponsored Leveraged Buyouts |
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Authors | |
Keywords | CEO Turnover Corporate Governance Leveraged Buyout Private Equity |
Issue Date | 2011 |
Publisher | Blackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/CORG |
Citation | Corporate Governance, 2011, v. 19 n. 3, p. 195-209 How to Cite? |
Abstract | Manuscript Type: Empirical Research Question/Issue: We examine the governance role of private equity (PE) firms in post-LBO companies in the US. We propose and test whether PE firms remove entrenched CEOs or CEOs who cause agency problems. Research Findings/Insights: Using archival data from a sample of 126 PE sponsored LBOs in the USA between 1990 and 2006, we document a CEO turnover rate of 51 per cent within two years of an LBO announcement. We find that the boards of directors replace CEOs in companies with high agency costs, as measured by low leverage and a high level of undistributed free cash flow. In addition, unlike the boards of directors in public companies, the boards in post-LBO companies tend to replace entrenched CEOs. Finally, the boards are more likely to replace CEOs if pre-LBO return on assets is low. Theoretical/Academic Implications: According to the agency theory, a PE-sponsored LBO is a new organizational form that reduces agency costs by enhancing corporate governance. This study uses CEO turnover as a setting to test that prediction. We find that PE firms replace CEOs who can cause agency problems, thus providing empirical support for the proposition that PE firms improve corporate governance in LBO companies. Practitioner/Policy Implications: This study offers insights to policy makers who are interested in regulating PE firms. Our results suggest that, in the US, PE firms provide effective corporate governance mechanisms by replacing incompetent and entrenched CEOs. In addition, our results provide a set of factors for PE firms to consider when they make CEO retention decisions. © 2010 Blackwell Publishing Ltd. |
Persistent Identifier | http://hdl.handle.net/10722/157735 |
ISSN | 2023 Impact Factor: 4.6 2023 SCImago Journal Rankings: 1.456 |
ISI Accession Number ID | |
References |
DC Field | Value | Language |
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dc.contributor.author | Gong, JJ | en_HK |
dc.contributor.author | Wu, SY | en_HK |
dc.date.accessioned | 2012-08-08T08:55:14Z | - |
dc.date.available | 2012-08-08T08:55:14Z | - |
dc.date.issued | 2011 | en_HK |
dc.identifier.citation | Corporate Governance, 2011, v. 19 n. 3, p. 195-209 | en_HK |
dc.identifier.issn | 0964-8410 | en_HK |
dc.identifier.uri | http://hdl.handle.net/10722/157735 | - |
dc.description.abstract | Manuscript Type: Empirical Research Question/Issue: We examine the governance role of private equity (PE) firms in post-LBO companies in the US. We propose and test whether PE firms remove entrenched CEOs or CEOs who cause agency problems. Research Findings/Insights: Using archival data from a sample of 126 PE sponsored LBOs in the USA between 1990 and 2006, we document a CEO turnover rate of 51 per cent within two years of an LBO announcement. We find that the boards of directors replace CEOs in companies with high agency costs, as measured by low leverage and a high level of undistributed free cash flow. In addition, unlike the boards of directors in public companies, the boards in post-LBO companies tend to replace entrenched CEOs. Finally, the boards are more likely to replace CEOs if pre-LBO return on assets is low. Theoretical/Academic Implications: According to the agency theory, a PE-sponsored LBO is a new organizational form that reduces agency costs by enhancing corporate governance. This study uses CEO turnover as a setting to test that prediction. We find that PE firms replace CEOs who can cause agency problems, thus providing empirical support for the proposition that PE firms improve corporate governance in LBO companies. Practitioner/Policy Implications: This study offers insights to policy makers who are interested in regulating PE firms. Our results suggest that, in the US, PE firms provide effective corporate governance mechanisms by replacing incompetent and entrenched CEOs. In addition, our results provide a set of factors for PE firms to consider when they make CEO retention decisions. © 2010 Blackwell Publishing Ltd. | en_HK |
dc.language | eng | en_US |
dc.publisher | Blackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/CORG | en_HK |
dc.relation.ispartof | Corporate Governance | en_HK |
dc.subject | CEO Turnover | en_HK |
dc.subject | Corporate Governance | en_HK |
dc.subject | Leveraged Buyout | en_HK |
dc.subject | Private Equity | en_HK |
dc.title | CEO Turnover in Private Equity Sponsored Leveraged Buyouts | en_HK |
dc.type | Article | en_HK |
dc.identifier.email | Wu, SY: sycwu@hku.hk | en_HK |
dc.identifier.authority | Wu, SY=rp01617 | en_HK |
dc.description.nature | link_to_subscribed_fulltext | en_US |
dc.identifier.doi | 10.1111/j.1467-8683.2010.00834.x | en_HK |
dc.identifier.scopus | eid_2-s2.0-79955736186 | en_HK |
dc.identifier.hkuros | 217630 | - |
dc.identifier.hkuros | 225548 | - |
dc.relation.references | http://www.scopus.com/mlt/select.url?eid=2-s2.0-79955736186&selection=ref&src=s&origin=recordpage | en_HK |
dc.identifier.volume | 19 | en_HK |
dc.identifier.issue | 3 | en_HK |
dc.identifier.spage | 195 | en_HK |
dc.identifier.epage | 209 | en_HK |
dc.identifier.isi | WOS:000290398800002 | - |
dc.publisher.place | United Kingdom | en_HK |
dc.identifier.scopusauthorid | Gong, JJ=35210035700 | en_HK |
dc.identifier.scopusauthorid | Wu, SY=37121309800 | en_HK |
dc.identifier.citeulike | 9286560 | - |
dc.identifier.issnl | 0964-8410 | - |