*3.3. CEO Turnover, Capital Structure, Dividend Policy, and Sector Homogeneity*

The agency conflict between CEO and shareholders can also be mitigated using capital structure and dividend policy. The creditors have the concern and appropriate skills to monitor the firms, and the shareholders benefit from their financial expertise (Ross 1977). In the meantime, the CEO is less willing to undertake excessive risks and is more disciplined, which eventually leads to a lower probability of being forced to quit his/her position. On the other hand, capital structure is considered in the literature as a reflection of the financial risk undertaken by the company (Hazarika et al. 2012; Hu and Leung 2012; Cronqvist et al. 2012). Hence, the leverage is expected to be positively associated with CEO turnover (forced or voluntary), especially in economies based on capital markets. Hazarika et al. (2012) for the US, and Hu and Leung (2012) for China provide weak evidence of a positive correlation between leverage and CEO turnover (forced and voluntary). On the other hand, Lin and Liu (2004) found a negative relation between leverage and forced CEO turnover in Taiwan.

In recent decades, financial theory has offered several explanations for dividend policy, based on signaling theories, or taking into consideration the agency conflicts between corporate insiders and outside shareholders. The dividend signaling hypothesis predicts that dividends convey information to shareholders/investors regarding the firm's future prospects, and only good-quality firms can use it (Bhattacharya 1979). Even when managers are not sure whether their company has the ability to generate cash flows in the future, they may keep dividends constant, or even gradually increase payments in order to avoid sending a negative signal to the market (Zwiebel 1996). Myers (2000) created a link between maintaining leading positions in the companies and the trustworthy perspective of dividend payments. Moreover, other studies argue that top-executive managers protect minority shareholders through dividend policy to create a reputation for treating outside shareholders well (Gomes 2000). Parrino et al. (2003) provide evidence that firms experience dividend cuts prior to forced CEO turnover.

Based on these arguments, we expect a company that pays dividends to have a lower probability of forced CEO turnover. High dividend yields increase the demand for the company's shares, which is expected to mitigate the potential conflict between managers and shareholders.

Parrino (1997) introduced sector homogeneity as a determinant of CEO turnover. He measured sector homogeneity through a volatility indicator of the company's stock return related to industry return. The intuition behind this assumption refers to the fact that in more homogeneous industries, the managerial skills required are similar, and managers can be easily replaced by others from the same industry. The low liquidity of the Romanian capital market did not allow us to follow the same methodology, but we indirectly studied the role of sector homogeneity on CEO turnover.
