Patrick McColgan

Firm Performance and Managerial Succession in Family Managed Firms

This paper investigates whether the family status of a companys top officer affects managerial replacement decisions. We report evidence that family-managed companies are characterized by higher levels of board control and potentially weak internal governance systems. Family CEOs are less likely than non-family CEOs to depart their position following poor performance. Stock prices react favorably and operating performance improves when companies announce the departure of a family CEO. Overall, our evidence suggests that shareholders benefit when a powerful CEO leaves their position in the company.

Employee Layoffs, Shareholder Wealth and Firm Performance: Evidence from the UK

We examine the financial performance of UK listed companies surrounding the announcement of permanent employee layoffs. We find that poor operating and stock price performance, increased gearing, and threats from external markets for corporate control precede employee layoffs. Layoff announcements elicit a significantly negative stock price reaction, which is driven by announcements that are reactive to poor financial conditions. We also find that layoffs result in significant increases in employee productivity and corporate focus. We conclude that layoffs represent an efficient response to poor financial conditions, but that their occurrence is strongly dependent on pressure from external control markets.

An Analysis of Changes in Board Structure During Corporate Governance Reforms

This study examines the evolution of company board structure during a period of corporate governance reform. Using data over a time period following the publication of the Cadbury Report (1992) we present evidence of an increase in the independence of UK boards, as measured by an increased willingness to employ independent non-executive directors, and to separate the positions of the CEO and the Chairman of the Board. In examining the determinants of these changes, we find that boards change more readily in response to changes in managerial control, equity issuance and corporate performance than changes in the firm-specific operating environment of companies.

Firm Performance, Entrenchment and Managerial Succession in Family Firms

This paper investigates the role of the family status of a companys top officer in managerial replacement decisions for a sample of 683 UK companies over the period 1992 to 1998. We report evidence that family firms are characterised by higher levels of board control, and weak internal governance in the form of independent company board structures. Consistent with a managerial entrenchment hypothesis, we find evidence that family CEOs are less likely to be removed from their position following poor performance than non-family CEOs. This relationship occurs even after controlling for the ownership of the companys top executive, suggesting that family status conveys additional power to the companys top officer in excess of that implied by their shareholding alone. Stock prices react favourably when companies announce that departure of a family CEO, but only when these directors are replaced by a non-family successor. We also report evidence of increases in operating performance following the departure of a family CEO, which are not witnessed following non-family CEO departures amongst our sample companies. Finally, we also find growth in company sales and employment following family CEO departures in excess of that witnessed following non-family CEO departures, indicating an untapped potential that family CEOs were unable to exploit prior to their departure. Overall, our results appear consistent with a managerial entrenchment hypothesis of the family status of a companys CEO, whereby the cash flows that shareholders expect to receive following their replacement are in excess of those anticipated under the family CEO.

Asset sales and firm strategy : an analysis of divestitures by UK companies

This paper examines the financial causes and consequences of the decision to sell-off non-financial assets as part of a new or ongoing restructuring programme by UK non-financial companies between 1993 and 2000. We report that asset sales follow a period of declining operating returns and tend to occur in diversified companies with high levels of financial leverage. Stock prices respond positively to asset sale announcements. This arises due to improvements in operating returns and a decline in financial leverage and corporate diversification subsequent to the disposal. Our findings suggest that asset sales represent an effective operational response to a firms poor financial condition. However, we also find that a managers decision to sell assets is strongly influenced by the explicit threats to their control from lenders and competition from product, labour and takeover markets.

Equity Issuance, Corporate Governance Reform and CEO Turnover in the UK

This paper examines the determinants of forced CEO turnover in a sample of UK firms during a period of substantial reforms in the board structure of domestic companies. Following the publication of the Cadbury Report (1992) UK listed companies increased their use of non-executive directors and were more willing to separate the functions of the CEO and the Chairman of the Board. We present strong evidence that greater outside director representation on company boards and separating the functions of the Chairman and the CEO lead to higher rates of forced CEO turnover, but this is not focused on the managers of poorly performing companies. The sensitivity of CEO turnover to company performance is greatest amongst companies that issue new equity. We also find that external CEO succession is more likely following forced turnover and is increasing in likelihood with the fraction of outside directors on company boards. Issues of new equity, and in particular placings, are correlated with internal CEO succession.