Agency theory has a central role in corporate governance; the conflicts between the managers and the owners are seen as a never ending problem. In this process managerial labor market plays a great role; the incentives of the managers are restructured; such as the threat of dismissal make them avoid poor performance. There are differences among the corporate governance systems all over the world (Denis and McConnell, 2003). These differences are well explained by dividing them into four systems; Anglo American, Latin, German and Japanese system (Shleifer and Vishny, 1997). Governance structure is most concerned with the assignment of the right people to management so that managers work best in the interest of investors. The American one is the most protective of the investors having strong positive link between poor performance and CEO dismissal; they are even seen as most involved in hiring and firing CEO (Alkan and Salvi, 2012).

Boards of directors do monitor the performance of the managers and replace the poorly performing ones; there are many studies confirming this. Firms having low stock returns are seen to change their CEO more frequently than other (Warner et al, 1988).There is negative relation between stock returns and CEO turnover probability (Kim, 1996) and industry adjusted firm earnings and top management turnover as well (Weisbach, 1998). What matters the most is the outcome from these managerial succession decisions. Some studies tell that CEO turnover made firms to finish their poorly performing business units (Weisbach, 1995). Another empirical evidence related to 908 management succession events suggested that turnover did improve corporate performance (Denis and Denis, 1995). But sometimes boards fail to perform well and this gives a chance to external mechanics to kick in.

The theory about market for corporate control was documented by Professor Manne who believed that it has a mitigating role in agency problems. The theory says the threat of a takeover disciplines poor performing managers, thereby reducing agency costs (Jensen, 1988).The opposing view says that it only worsen the relations of managers and shareholders. Some authors express doubt that the takeover process is an effective means for disciplining management (Ravenscraft and Scherer, 1987) and (Franks and Mayer, 1996). In this case, an active market for corporate control does not necessarily reflect the extent to which managerial inefficiencies are being corrected. Basically takeovers and boards are substitutes of each other with respect to disciplining managers (Hirshleifer and Thakor, 1998). This is because of the external pressure faced by the firms; basically when firms perform poorly and the board do not intervene to discipline managers; it reflects poor internal governance giving rise to external mechanisms i.e. market for corporate control.

The results of the market for corporate control raise our concern regarding the motive behind takeovers. Studies tell that takeovers are rarely motivated by poor performance; they are motivated by other objectives such as changes in corporate strategy, tax motives (Franks and Mayer, 1996). Many managerial theories says that takeovers are based on growth and size objectives (Muller, 1985). So when the focus of the takeovers is on other objectives it is hard to say that it increases the managerial efficiency; actually it may or may not discipline managers (Gugler, 1999).

There are two types of turnover forced and voluntary turnover; forced turnover is further categorized into improved management hypothesis and scapegoat hypothesis. The improved management hypothesis says that forced turnover do increase the managerial quality and the expected performance. Scapegoat hypothesis says that poor performance does not arise from low management quality rather from the bad luck (Shavell, 1979).Voluntary turnover arises because of retirement of CEO due to his age or when he wants to join some other firm. These turnover have nothing to do with bad management; appointing a new manager could increase or decrease managerial quality. Therefore the expected changes in the performance of the firm after voluntary takeover is smaller than the forced turnover. After turnover the firm decides to hire an insider or an outsider; outsider is appointed only when an incremental improvement relative to an insider is expected because outsiders are expensive to hire (Dalton and Kesner, 1985). But if we talk about the turnover announcement stocks abnormal returns; they are significantly positive for outsiders and significantly negative for insiders (Borokhovich et al., 1996).

There is a definite interaction between takeovers and board interference to reduce agency costs; inefficient managers can be removed in two ways either by the board of directors or by a hostile takeover. They both are jointly believed to develop dismissal threat in the managers and discipline them in some way or the other. If boards are more effective the takeover markets would be less liquid resulting in less fewer acquisition opportunities for successful managers. These external and internal mechanics are seen as reducing the agency problems; but there are fewer empirical evidences relating market for corporate control to increase shareholders value.