Online from: 2002
Subject Area: Accounting and Finance
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|Title:||The impact of changes in firm performance and risk on director turnover|
|Author(s):||Sharad Asthana, (Department of Accounting, College of Business, University of Texas-San Antonio, San Antonio, Texas, USA), Steven Balsam, (Department of Accounting, Fox School of Business, Temple University, Philadelphia, Pennsylvania, USA)|
|Citation:||Sharad Asthana, Steven Balsam, (2010) "The impact of changes in firm performance and risk on director turnover", Review of Accounting and Finance, Vol. 9 Iss: 3, pp.244 - 263|
|Keywords:||Company performance, Directors, Employee turnover, Risk analysis|
|Article type:||Research paper|
|DOI:||10.1108/14757701011068057 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
|Acknowledgements:||The authors are thankful for comments and suggestions from an anonymous reviewer and workshop participants at the American Accounting Association National Conference 2008, Lehigh University, Louisiana State University, University of Texas-San Antonio, and York University.|
Purpose – The purpose of this paper is to show that director turnover varies in predictable and intuitive ways with director incentives.
Design/methodology/approach – The paper uses a sample of 51,388 observations pertaining to 13,084 directors who served 1,065 firms during the period 1997-2004. The data are obtained from RiskMetrics, Compustat, Execu-Comp, CRSP, IBES, and the Corporate Library databases. Portfolio analysis, logit, and GLIMMIX regression analysis are used for the tests.
Findings – The paper provides evidence that directors are more likely to leave when firm performance deteriorates and the firm becomes riskier. While turnover increasing as firm performance deteriorates is consistent with involuntary turnover, directors are also more likely to leave in advance of deteriorating performance. The latter is consistent with directors having inside information and acting on that information to protect their wealth and reputation. When inside and outside director turnover is contrasted, the association between turnover and performance is stronger for inside directors.
Research limitations – Since data are obtained from multiple databases, the sample may be biased in favor of larger firms. The results may, therefore, not be applicable to smaller firms. To the extent that the story is unable to differentiate between voluntary and involuntary director turnover, the results should be interpreted with caution.
Originality/value – Even though extant research has looked extensively at the determinants of CEO turnover, little has been written on director turnover. Director turnover is an important topic to study, since directors, especially outside directors, possess a significant oversight role in the corporation.
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