*3.4. CEO Diversity, Political Influences, and CEO Turnover in Unstable Environments*

## 3.4.1. Particularities of the Romanian Economic Environment

Due to the fact that Romania still has a poor corporate governance culture and a relatively high perceived level of corruption (Claessens and Yurtoglu 2013), we analyzed the possibility of political influences on CEO turnover decisions.

State ownership, and sometimes the state as the controlling shareholder, can significantly influence the decision to change the CEO or other board members. If the CEOs of privately controlled firms are politically connected, those companies could have increasing access to credit, as well as to regulatory favors and government financial assistance. In these cases, the likelihood of CEO turnover is lower. Also, if the CEOs are politically connected, this fact causes weaker turnover -performance sensitivity (Cao et al. 2016) and the criteria for executive evaluations may be different. State-owned companies are more likely to apply government-oriented executive evaluations that focus on political performance rather than on their economic performance (Liu and Zhang 2018).

Taking into account several references of CEO appointments based on political criteria in different Romanian listed companies where the state is a significant or controlling shareholder, we expect a greater likelihood for CEO turnover after political parties (coalitions) change in parliamentary elections. If the political forces in power change, more frequent CEO turnover could follow if political pressure is exercised in the economic environment. Based on these considerations, our first tested hypothesis is:

**Hypothesis 1 (H1).** *Forced CEO turnover probability is higher, subsequent to political changes in companies with governmental ownership, especially when the government is an important shareholder*.

#### 3.4.2. Particularities Related to Post-Communist Economies

We also tested for potential inefficiencies in the labor market. A general practice of post-communist countries is to reproduce the mechanisms from developed market economies, usually without adapting them to their socio-cultural values (see, in this context, the complex analysis of King and Szelenyi 2005). The problem can be even more stringent when it is cumulated to the propensity toward the conservatism of experienced people. In this case, a foreign manager can bring an advantage in terms of experience in a highly competitive environment and knowledge regarding the newly implemented systems.

On the other hand, the appointment of foreign CEOs is not without risk, because they are not accustomed to the local economic environment. Due to the scarcity of the labor market, a bigger effort may be made to appoint a foreign manager, and therefore we can expect a lower probability for a forced turnover. However, difficulties to adapt to the new environment may worsen the performance of the company and eventually lead to a forced CEO turnover. A correlation between a CEO's origin and CEO turnover points to a possible gap in the managerial skills between domestic and foreign CEOs. The second tested hypothesis is:
