Working Paper: CEPR ID: DP3229
Authors: Paolo Volpin
Abstract: This Paper studies the determinants of executive turnover and firm valuation as a function of ownership and control structure in Italy, a country that features low legal protection for investors, firms with controlling shareholders, and pyramidal groups. The results suggest that there is poor governance, as measured by a low sensitivity of turnover to performance and a low Q ratio, when (i) the controlling shareholders are also top executives, (ii) the control is fully in the hands of one shareholder and is not shared by a set of core shareholders, and (iii) the controlling shareholders own less than 50% of the firm?s cash-flow rights.
Keywords: Corporate Governance; Executive Turnover; Pyramidal Groups
JEL Codes: G34; J63; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| controlling shareholders who are also top executives (G34) | lower turnover sensitivity to performance (M51) |
| fraction of cash flow rights owned by the controlling shareholder (G32) | sensitivity of turnover to performance (M51) |
| existence of a voting syndicate (D72) | turnover sensitivity to performance (J63) |
| controlling shareholders are top executives (G34) | Q ratio (Q50) |