**5. Results and Discussion**

Table 3 presents evidence on the relation between firm performance, CEO characteristics, political influence, industry sector, or financial crisis and CEO turnover likelihood. In accordance with H1, the interactional variable for political change and governmental ownership is positively and significantly correlated with forced CEO turnover. This relation is proof of the political influence on the Board of Directors' decisions, especially when the Romanian government owns an important share of total equity.

Consistent with H2, the foreign origin of the CEO for the Romanian listed companies is positively and significantly correlated with the likelihood of forced CEO turnover (see Table 3). The probability of forced turnover was higher (i.e., 15–20%) if the CEO was of foreign origin. This result is in line with Boenisch and Schneider (2013), who found that one of the communist legacies is the formation of strong closed informal connections, difficult to breach, and it can also be a clue for explaining foreign managers' difficulties to adapt to the Romanian environment.

We found a positive and significant correlation between the female CEO dummy and CEO forced turnover likelihood (similar to the results from Kato and Long 2006). The probability of forced turnover was higher (i.e., 7–8%) when the CEO was a woman.

We also found evidence that the crisis dummy is positively and significantly correlated with forced CEO turnover. The probability of forced CEO turnover was around 7% higher in 2009, amidst the crisis, than in other years from the database. This result is in accordance with Kaplan and Minton (2012), concluding that the expectations regarding the industry and market performances (decreasing during an economic crisis) negatively influence the probability of forced CEO turnover. An unstable economic and financial environment also puts pressure on the Romanian listed companies' management, and, consequently, the probability of forced CEO turnover is higher than in more stable economic times.

Our results are in line with the results from the existing literature and show that CEO turnover (particularly forced replacements) is inversely related to firm and industry performances (Hu and Leung 2012; Kato and Long 2006; Muravyev et al. 2010, among others). We also found that companies with low industry-adjusted return are more likely to have forced CEO turnovers (see Eisfeldt and Kuhnen 2013). Due to the anomalies of the Romanian capital market, we expected the accounting-based performance indicators to be more reliable than the market-based returns. We used similar models for forced CEO turnover and the three different market-based performance measures (price to book value, total stock return, and capital gains return), but we found no significant relation with the probability of forced CEO turnover4.

The average marginal effects explain how sensitive the probability of CEO forced turnover is to independent variables. Some differences can be noticed in the amplitude of the average marginal effects, depending on the performance measures used. A 1% decrease in the return was correlated with an increase of the probability of CEO forced turnover of around 0.3% if we measured firm

<sup>4</sup> These results are available upon request.

performance using ROE, 0.5% if the performance indicator was ROA, and 0.54% for the operating margin. These results suggest that the Romanian listed companies put less emphasis on shareholders' interests than on the whole capital invested by creditors and shareholders for CEO turnover decisions.

A 1% decrease of the three-year average return was correlated, with slightly lower increases in the likelihood of forced CEO turnover than in the case of the performance indicators computed for the previous year. This result could be an argument for the assumption that for the Board of Directors, the short-term perspective of the performance is prevalent before the long-term perspective in their forced CEO replacement decisions. Our results are similar to Kaplan and Minton (2012), but with lower magnitude than those of Eisfeldt and Kuhnen (2013). One possible explanation for the difference in the magnitude of the changes can be the occurrence of the financial crisis during the analyzed period.

We found almost similar results for the likelihood of forced CEO turnover when we used contemporary firm performance measures. When we used three-year average ROA and ROE, the results were no longer statistically significant.

Regarding the scarcity of the managerial labor market, we found evidence that the utilities, energy, and pharmaceutics sectors are more likely to force CEOs to leave their positions. Our result is in accordance with Parrino (1997), who found that the utilities and energy sectors are among the most homogeneous.

With regards to the relation between CEO turnover and different corporate governance characteristics, first we found that the CEO–Chairman duality is inversely related to the likelihood of forced CEO turnover (Hazarika et al. 2012; Helwege et al. 2012; Hu and Leung 2012). This correlation can be explained through a higher influence of the CEO on the Board of Directors and higher opportunities for the CEO to maintain informational asymmetries. For our sample, the probability of forced CEO turnover was lower, by around 10%, for companies where CEOs held a dual position, compared to the rest of the sample.

Second, the presence of the controlling shareholder was associated with a lower probability of forced CEO turnover (see Brunello et al. 2003; Parrino 1997), which is consistent with a greater probability of type II agency conflicts. All other variables related to ownership had no statistical significance.

Third, similar to Parrino et al. (2003), the "voting with their feet" behavior can be validated for the Romanian listed companies. By some means, this result is expected for a transitional country with an enforced Corporate Governance Code only from 2009. Moreover, the results may be due to the lower holdings of the institutional investors compared to developed countries. For US companies, Helwege et al. (2012) showed that although the net change in institutional ownership prior to forced CEO turnover is negative and significant in the first sub-period of their analysis, the extent of "voting with their feet" is small and declines over time, and so becomes irrelevant in the second sub-period. The authors signal that the role of institutional investors in forced CEO turnover tends to diminish and that research must move toward other determinants. Such empirical evidence could also explain a lower statistical significance for this variable, registered for our Romanian sample for the period 2005–2010.

Fourth, we found no influence of board size and independence (as in Muravyev et al. 2010). This result can be explained by a limited effectiveness of corporate governance mechanisms, or through the activism of the first large shareholders, who put in place other mechanisms to control the managers. Additionally, we cannot exclude the assumption of a passive attitude of the outside directors. The results are somewhat similar to Miyajima et al. (2018), where the independent outside directors have no significant effect of enhancing CEO turnover sensitivity to ROE. The CEO turnover sensitivity to ROA is higher when boards have three or more independent outside directors than when boards have only one outside director.

Leverage is negative and statistically significantly correlated with the likelihood of forced CEO turnover (see Table 3). This link shows the existence of agency conflicts between managers and shareholders, which can be alleviated using the supplementary monitoring realized by the creditors. The creditors have the concern and appropriate skills to monitor the firms, and the shareholders benefit from their financial expertise.


*JRFM* **2020**

, *13*, 59


**Table 3.** *Cont*.

#### *JRFM* **2020** , *13*, 59

Due to a relatively high homogeneity in our sample regarding the size of the Romanian listed companies, firm size becomes less important, but remains significant in explaining the CEO turnover decisions. The results for average marginal effects show that a 1% increase of the logarithm of net sales was associated with a decrease of around 2.5% of the likelihood of forced CEO departure.

Additionally, we analyzed separately voluntary and forced CEO turnovers. For voluntary CEO turnover, we found similar results as for all CEO turnovers in regard to the foreign origin of CEOs and ownership, supporting the explanations mentioned above. We found no statistically significant relation between firm performance and the likelihood of voluntary CEO turnovers, neither for accounting-based nor market-based returns. This result is consistent with mainstream literature, concluding that forced CEO turnovers are related to firm and industry performances, whereas other forms of managerial turnover are not linked to firm performance (see Eisfeldt and Kuhnen 2013).

The unreported results for the pooled data analysis were similar for CEO turnover, and also for forced and voluntary CEO turnovers.5 Additional robustness tests were performed by gradually introducing into the logit models the explanatory variables for both specifications (balanced and unbalanced panel data). The results confirm the significance of all variables.
