Article2012

Antecedent and consequence factors of CEO turnover in Indonesia

Lindrianasari Lindrianasari · Jogiyanto Hartono

15 citations0/0 files storedManagement Research Review

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Corporate Finance and Governance Auditing, Earnings Management, Governance Corporate Governance and Financial Management

Abstract

Purpose The purpose of this paper is to examine the usefulness of accounting and market information when considering the issue of CEO turnovers in Indonesia. Design/methodology/approach The samples used in this research were corporations identified to have undergone (routinely or non‐routinely) top management turnovers (which in this case were President Directors). This study used samples from all corporations that experienced CEO turnover during the period of 1998‐2006 and determined the accounting variables that were thought to explain the turnovers. Corporations that did not experience CEO turnovers throughout the observed period were used as the control group. The final samples for both data sources were decided after considering data availability and confounding effects within the period of observation and were tested by using the LOGIT (separately) model, due to the fact that the dependent variables used were binary variables: 1 for turnover and 0 for no‐turnover. Findings The overall results indicated that decreasing accounting and market performance within a company, in an average period of three years, encouraged CEO turnovers. Research limitations/implications This paper did not take into account the wider reasons for turnovers, such as CEOs hitting pension age (retirement), death, or forced or voluntary turnovers, all of which in previous research were areas that showed considerable influence. In future research, it would be important to consider those characteristics, along with the personalities of the CEOs who left the firms and those who were brought in. Practical implications Owners of firms have to be careful when making decisions to turnover CEOs because the action can generate significant reactions from the market. This market reaction, of course, is the factor that influences the prosperity of the company. Originality/value This paper demonstrates that when accounting and market performance is good, the probability that the presiding CEO will not be fired is higher, and vice versa.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1993Organizational culture and leadership 1988Outside directors and CEO turnover 1984Methodological Issues Related to the Estimation of Financial Distress Prediction Models 1977ZETATM analysis A new model to identify bankruptcy risk of corporations 1988Stock prices and top management changes 2007The use of logit and probit models in strategic management research: Critical issues 1985Executive compensation, management turnover, and firm performance

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