Olga Lazareva and Sergey Solntsev Department of Economics, HSE
CEO Turnover and Firm Performance in Russia
Slide 2
Research question Agency problem in large firms: how to
motivate CEO to act in the interests of shareholders? Tying CEOs
remuneration to the firm performance Threat of firing in case of
poor performance Is there a link between firm performance and CEO
turnover in large Russian firms during 2003-2012? How did the
turnover and turnover-performance sensitivity change during the
crisis of 2008-2009 for the different types of firms (in
particular, state-connected) and different types of managers
(insiders-outsiders)? We report preliminary results (work in
progress)!
Slide 3
Our contribution We study of CEO turnover for the sample of the
largest firms, and We cover a long period including crisis of
2008-2009 We compare the performance-turnover relationship for the
strategic (state-connected/state-supported) vs. non- strategic
firms, before and after the crisis We compare the
performance-turnover relationship for inside vs. outside CEOs
Slide 4
CEO turnover sensitivity to the firm performance Kaplan and
Minton 2012: Increased CEO turnover in large US firms (Fortune 500)
over 2000s compared to previous years Increased sensitivity of
turnover to firm stock performance relative to industry or stock
market Factors: growing block holdings and board independence Denis
and McConnell (2003), Gibson (2003), and Kato and Long (2006)
Gilson (1990) recorded the significant rise of senior managers
resignation in companies undergoing bankruptcy. Karlsson and
Neilson (2009) stated that little has changed in CEO labor market
during the 2008; moreover, in North America and Europe, the CEO
turnover rate has decreased
Slide 5
CEO turnover in politically connected firms Kato and Long 2006
find weaker turnover-performance sensitivity and slower improvement
in performance following the turnover for state-controlled firms in
China Yuan 2011 politically connected CEOs in China have lower
sensitivity of their turnover to firm performance Goldman 2009
politically connected boards of directors positively affect firm
value in US Iwasaki and Frye 2011 government directors on the
boards of Russian firms are present in collusion type firms which
extract and provide benefits to state
Slide 6
CEO turnover research in Russia Rachinsky (2002) examined
senior managers turnover from 1997 to 2001 Muravyev (2003)
presented negative correlation between firms productivity and CEOs
replacement probability in late 1990ies for the sample of
industrial firms Dyomina and Kapelyushnikov (2005) analyzed a
sample of industrial firms in 1997-2003: poor firm performance
increases the probability of CEO turnover Abe and Iwasaki in
Dolgopyatova, Iwasaki and Yakovlev (2009): nonpayment of dividents
increases probability of CEO turnover for the sample of firms
surveyed in 2005 Solntsev 2013, Roshchin and Solntsev 2006: study
top management transitions in Russian firms over 2000s
Slide 7
Economic crisis of 2008-2009 Russian GDP fell by 7.8% in 2009
Companies turned from expansion to crisis management, thereby
changing the demand for the skills of senior managers Simachev et
al 2009, Danilov, Simachev and Yakovlev 2010: major state support
during crisis was targeted at large industrial firms and sectors
with large employment (automobiles and agricultural machinery, oil
and gas sector, the military-industrial complex) Major tools of
support providing access to financing (subsidies and guarantees on
loans etc.) and tax reductions Golikova et al. (2011): Russian
mid-sized companies coped with the economic recession better than
large-sized ones
Slide 8
Systemic/strategic firms during crisis ( / ) In December 2008
government approved a list of 295 firms (few more added later)
These firms could expect to receive government support during the
crisis (credit guarantees, interest rate subsidies, restructured
tax debts, public procurements, preferential export and import
tariffs). The criteria for inclusion in this list: annual sales of
over RRB15 billion (around USD500 million) and a workforce of no
less than 4000 employees); also, firms on the list were required to
have the status of enterprises forming company towns and a certain
level of tax payments. Selective measures to help large and very
large corporations intensified lobbying efforts
Slide 9
Data sources Sample - 355 firms from Expert-400 rating, which
includes largest Russian firms based on sales volume in 2012 97 of
them are strategic Panel data for 2003-2012 Data on CEOs Spark
database (provides information starting from late 1990ies) and
other available sources (company websites, annual reports etc.)
(collected in HSE Laboratory for Labor Market Studies) Financial
and ownership data Ruslana (Bureau Van Dijk) Ownership: 17% of
firms are majority state controlled, 19% are foreign-owned (mostly
MNCs) Out of 97 strategic firms only 23 are state-controlled No
data on boards of directors (yet)
Slide 10
Sector composition of the sample
Slide 11
CEO turnover rate by year
Slide 12
CEO turnover rate by sector
Slide 13
CEO turnover rate (excl. electroenergy firms)
Slide 14
CEO characteristics by year YearCEO ageCEO
tenureFemaleForeignerInsider 2003 45,93,84%13%48% 2004
45,73,63%14%46% 2005 46,03,82%14%47% 2006 46,74,02%14%46% 2007
47,14,12%15%44% 2008 47,94,12%15%42% 2009 48,24,13%16%44% 2010
48,64,34%16%43% 2011 48,74,43%15%45% 2012 49,34,73%17%43% Among US
S&P500 firms in 1990s 26% of new CEO hires are outsiders, in
2000- 2005 32,7% (Murphy, Zabojnik 2008).
Slide 15
Average tenure of an outgoing CEO
Slide 16
CEO characteristics by sector SectorCEO age CEO
tenureFemaleForeignerInsider Electroenergy 47,92,30%3%28% Oil, gas,
coal, metals 49,15,00%4%47% Chemicals and machine building
50,93,04%17%45% Food and agriculture 43,92,74%26%43% Construction,
transport, communications 50,45,55%2%46% Trade and catering
42,13,83%37%56% Finance 44,95,14%10%41% IT and science
49,27,92%1%35% Other 47,62,40% 53%
Slide 17
Previous experience Year Experience in the same
sectorExperience as CEOExperience as state official
200392,1%75,3%26,7% 200492,9%76,9%25,4% 200592,5%75,3%27,0%
200692,8%73,7%25,9% 200793,2%74,6%26,0% 200894,6%76,1%27,6%
200995,6%77,4%27,7% 201095,3%75,2%27,9% 201195,0%75,3%27,4%
201294,6%76,5%26,6%
Slide 18
Previous position
Slide 19
International comparisons In our sample: Average tenure
2003-2012 4.1 Average completed tenure (upon leaving) 3.2 Average
turnover rate 17.9%, before crisis 16,4% During 1990ies from 7 to
12%, tenure 8-9 years (according to earlier studies) Average tenure
in large US firm (Kaplan and Minton 2012): for 1992-1999 average
turnover rate 14,9%; for 2000-2007 average turnover rate 16,8% In
China: 24% annual turnover (period 1998-2002) (Kato and Long
2006)
Slide 20
Methodology T t =ROA t-1 + S-list + ROA t-1 * S-list +X t-1 + e
T t indicator of turnover in year t S-list indicator of the firm in
strategic list Firm performance measure ROA, i.e. return on assets
(profit to assets), winsorized at 2%, absolute or relative to
industry average; additionally, sales growth, change in ROA
Controls: CEO age, gender, tenure, log assets, sector, ownership
(majority state owned, foreign controlled), year We exclude
electrical energy sector firms (turnover there is related to the
sector reform)
Slide 21
Results: the effect of performance on turnover (strategic)
(1)(2)(3)(4)(5) Before 20092009-10 ROA( t-1)
-0.339***-0.356***-0.399***-0.230*-0.356
(0.117)(0.104)(0.133)(0.126)(0.221) Strategic
-0.044*-0.027-0.045*0.016-0.113**
(0.025)(0.029)(0.024)(0.032)(0.046) Strategic*ROA -0.026
-0.2830.372 (0.255) (0.281)(0.493) Crisis 0.058**0.046**
(0.027)(0.023) Strateg*Crisis -0.043 (0.035) Crisis*ROA 0.126
(0.211) N 1024 536314 pseudo R 2 0.0720.0660.0650.1150.075
Slide 22
Results: the effect of performance on turnover (insider)
(1)(2)(3)(4) All years 2003-82009-10 Insider
-0.0070.0020.030-0.085** (0.022) (0.021)(0.039) ROA t-1
-0.321***-0.558***-0.462***-0.391 (0.102)(0.138)(0.125)(0.271)
Insider*ROA 0.546***0.530***0.213 (0.200)(0.187)(0.402) N 855
432268 pseudo R 2 0.0610.0700.1480.084
Slide 23
Results: the effect of turnover on subsequent performance
(1)(2)(3)(4)(5)(6) Sales growth t+1 ROA growth t+1 Sales growth t+1
ROA growth t+1 Sales growth t+1 ROA growth t+1 All years20092010
CEO change 0.458***0.0070.582**0.041**0.2240.018
(0.126)(0.008)(0.276)(0.018)(0.229)(0.012) Strateg
-0.002-0.008-0.2190.009-0.112-0.027*
(0.103)(0.008)(0.267)(0.014)(0.208)(0.014) Log assets
-0.229***0.002-0.127*0.002-0.1120.006
(0.035)(0.002)(0.076)(0.005)(0.104)(0.004) N
17461518252259262266
Slide 24
Preliminary conclusions CEO turnover rates in large Russian
firms are similar to large US firms Turnover has increased during
the crisis by 50% CEO turnover in Russian firms does increase in
response to the poor financial performance Firms that were promised
state support during the crisis replaced their CEOs less often
(controlling for state ownership) but performance- turnover
sensitivity is the same Insider CEOs had lower performance-turnover
sensitivity before crisis and lower turnover during crisis Firms
that replaced CEOs during the crisis (in 2009) have experienced
faster recovery