Clara Graziano

CEO turnover in insider-dominated boards: The Italian case

Abstract We investigate CEO turnover in relationship to performance, ownership concentration and CEO ownership in a sample of 60 private companies listed on the Italian Stock Exchanges over the 9-year period 1988–1996. Concentrated ownership, family control, limited institutional investors activism, and lack of main bank monitoring make Italy a corporate governance environment dominated by insiders. As a result, boards of directors are dominated by insiders and/or represent the interests of the controlling shareholders. Our main finding is that CEO turnover is negatively related to firm performance also in this environment, but this relationship holds only if the controlling shareholder is not the CEO. Our findings suggest that insiders with large stakes monitor and replace under-performing outside CEOs. The paper offers positive empirical evidence that non-CEO controlling shareholders are a governance mechanism that provides a substitute for outside members on boards of directors in lowering agency costs. When the CEO is an owner, however, we have all the negative aspects of insider-dominated boards.

Executive compensation and firm performance in Italy

Abstract We use survey data to investigate the determinants of executive pay in a sample of Italian firms. To the best of our knowledge this is the first empirical study on the compensation of Italian executives. Our key hypothesis is that the characteristics of the Italian capital market, corporate governance and the specific relationship between banks and firms imply a low fraction of incentive pay over total compensation and a low sensitivity of incentive pay to firm performance. We find evidence that supports this hypothesis. We estimate that an increase of real profits per firm by 1 billion lire increases the pay of upper and middle managers by only 31 thousand lire, more than the increase found for lower management (6 thousand). Furthermore, pay–performance sensitivity is higher in foreign-owned firms, in listed firms, and in firms affiliated to a multinational group.

Do managers work harder in competitive industries

Abstract We analyze the relationship between product market competition and managerial effort in a linear principal–agent model. Firms compete in a differentiated Cournot oligopoly. We use two competition indexes: the degree of product differentiation and the number of firms. An increase in competition stemming from a lower degree of product differentiation reduces the optimal level of effort, while an increase in competition from more firms has an ambiguous effect. An increase in the number of firms reduces (increases) effort when the degree of product differentiation is low (high).

Ownership or Performance: What Determines Board of Directors' Turnover in Italy?

This paper analyses the turnover of board of directors members on a sample of companies listed on the Milan Stock Exchange in the period 1988-1996. Our aim is to investigate if board members change more frequently when company performance is poor, as the literature suggests, if this relationship is similar for C.E.O.s and other board members, and if and how the ownership structure of Italian companies affects these relationships. We use three different measures of board of directors turnovers: turnover A is the turnover of all board members; turnover B is the turnover of the President, Vice-President, C.E.O. and General Manager; finally turnover C is the turnover of C.E.O.s only. We find that changes in ownership affect turnover and that the relationship between turnover and performance is stronger in companies that have experienced a change in the controlling shareholder.

Cost observability and renegotiation

Abstract A project requires an initial specific investment. The total cost of the project depends on the probability that the supplier will experience a delay in the production schedule. This probability is the suppliers private information. The buyer would like to hire a supplier with a low probability of delay. However, it can offer a screening contract only by committing to terminate the project if the supplier is not able to complete it within the original budget limits. We show that cost observability may prevent the buyer from terminating a cost overrun project and this, in turn, prevents screening out ‘bad’ suppliers. Thus, we provide an example in which superior monitoring ability represents a disadvantage for the buyer. This finding contrasts with the common argument that better monitoring represents an advantage of integrated organizations.

What Determines Board of Directors' Turnover in Italy?

This paper analyses the turnover of board of directors members on a sample of companies listed on the Milan Stock Exchange in the period 1988-1996. Our aim is to investigate if board members change more frequently when company performance is poor, as the literature suggests, if this relationship is similar for C.E.O.s and other board members, and if and how the ownership structure of Italian companies affects these relationships. We use three different measures of board of directors turnovers: turnover A is the turnover of all board members; turnover B is the turnover of the President, Vice-President, C.E.O. and General Manager; finally turnover C is the turnover of C.E.O.s only. We find that changes in ownership affect turnover and that the relationship between turnover and performance is stronger in companies that have experienced a change in the controlling shareholder.