An empirical investigation into top management turnover in UK quoted companies

The present research analyses the determinants and the implications of senior management departures in the UK. Based on a sample of the 460 largest UK companies by market capitalisation over 1990-1998, and using regression techniques, this study investigates the event of top management turnover in three empirical chapters. The first one documents the circumstances under which poor firm performance may lead to a CEO job separation. The second chapter explores the organisational consequences of CEO turnover by modelling - for the first time in the UK - Chairman turnover at the time of CEO departure. The last empirical chapter deals with the implications of CEO turnover on investment choices. The most important methodological advancement is the rigorous and comprehensive classification of management departures, which increases significantly the power of the tests considered in the thesis. The provision of additional evidence on the conflicting issue of managerial entrenchment, the modelling of Chairman turnover and the investigation of the role of equity-based compensation in mitigating opportunistic managerial incentives are among the conceptual contributions of the study. The primary findings of the thesis can be summarised as follows. Firstly in terms of top management departures, CEO turnover is linked with poor firm performance although the latter must fall significantly in order to increase the turnover likelihood. This disciplining effect seems to have not become stronger over time and, CEOs do not appear to become entrenched at high ownership levels. Secondly with regard to Chairman turnover, there is evidence that some Chairmen also depart when the CEO turns-over, especially following poor company performance or CEO dismissals. Outside CEO succession, on the other hand, does not appear to be associated with additional increases in the Chairman turnover likelihood. Finally with respect to investment, it appears that CEOs threatened by forced termination, tend to cut down investment prior to their departure in order to increase reported income and “save” their jobs. In contrast, retiring CEOs do not engage in opportunistic behaviour, even if they own a small fraction of the company's equity