DP3229 Governance with Poor Investor Protection: Evidence from Top Executive Turnover in Italy

Author(s): Paolo Volpin
Publication Date: February 2002
Keyword(s): corporate governance, executive turnover, pyramidal groups
JEL(s): G34, J63, L14
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3229

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.