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Article: CEO Turnover in Private Equity Sponsored Leveraged Buyouts

TitleCEO Turnover in Private Equity Sponsored Leveraged Buyouts
Authors
KeywordsCEO Turnover
Corporate Governance
Leveraged Buyout
Private Equity
Issue Date2011
PublisherBlackwell 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?
AbstractManuscript 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 Identifierhttp://hdl.handle.net/10722/157735
ISSN
2015 Impact Factor: 2.169
2015 SCImago Journal Rankings: 1.119
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorGong, JJen_HK
dc.contributor.authorWu, SYen_HK
dc.date.accessioned2012-08-08T08:55:14Z-
dc.date.available2012-08-08T08:55:14Z-
dc.date.issued2011en_HK
dc.identifier.citationCorporate Governance, 2011, v. 19 n. 3, p. 195-209en_HK
dc.identifier.issn0964-8410en_HK
dc.identifier.urihttp://hdl.handle.net/10722/157735-
dc.description.abstractManuscript 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.languageengen_US
dc.publisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/CORGen_HK
dc.relation.ispartofCorporate Governanceen_HK
dc.subjectCEO Turnoveren_HK
dc.subjectCorporate Governanceen_HK
dc.subjectLeveraged Buyouten_HK
dc.subjectPrivate Equityen_HK
dc.titleCEO Turnover in Private Equity Sponsored Leveraged Buyoutsen_HK
dc.typeArticleen_HK
dc.identifier.emailWu, SY: sycwu@hku.hken_HK
dc.identifier.authorityWu, SY=rp01617en_HK
dc.description.naturelink_to_subscribed_fulltexten_US
dc.identifier.doi10.1111/j.1467-8683.2010.00834.xen_HK
dc.identifier.scopuseid_2-s2.0-79955736186en_HK
dc.identifier.hkuros217630-
dc.identifier.hkuros225548-
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-79955736186&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume19en_HK
dc.identifier.issue3en_HK
dc.identifier.spage195en_HK
dc.identifier.epage209en_HK
dc.identifier.isiWOS:000290398800002-
dc.publisher.placeUnited Kingdomen_HK
dc.identifier.scopusauthoridGong, JJ=35210035700en_HK
dc.identifier.scopusauthoridWu, SY=37121309800en_HK
dc.identifier.citeulike9286560-

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