**2. A Short Description of the Romanian Environment in Terms of Corporate Governance and Investors' Protection**

In 2009, the Romanian Corporate Governance Code was adopted on a comply-or-explain basis. It proposed principles harmonized to those of the European Union. For the most liquid listed companies in Romania, Dobro¸teanu et al. (2010) provided empirical evidence of a corporate governance disclosure gap. Indeed, Romanian listed companies still have a hesitant evolution regarding the implementation of the corporate governance standards.

Romania has a small capital market, even in comparison with different CEE countries, with 73 listed companies in 2010 (compared with 240 in Croatia, 390 in Bulgaria, and 570 in Poland in the same year) and with low trading volumes (1% for stock traded value, as % of GDP, compared with 15% for Poland and 11% for Czech Republic in 2010) (World Bank indicators) and relatively few disclosure requirements (including those for corporate governance). Moreover, the development of the Romanian capital market, including the corporate governance domain, took place in a peculiar political and economic context, different from other CEE countries. Due to the fact that the Romanian governments focused more on political issues than on important and necessary economic decisions for the healthy development of an ex-communist country, the economic gap of CEE countries such as the Czech Republic, Poland, and Hungary increased, and Romania joined the European Union only in 2007 (Filip and Raffournier 2010).

Because we use market-based performance variables (alongside accounting-based performances), additional explanations are necessary for the Romanian capital market. Previous studies regarding the efficient market hypothesis (EMH) either reject it or provide evidence only for a relatively low degree of informational efficiency (Dragotă and Mitrică 2004). The most recent studies have both interesting and intricate conclusions. Dragotă and ¸Tilică (2014) reject the weak form of informational efficiency, but reveal that for some assets and indexes, it is hard to reach systematic abnormal earnings. In this context, we expect some questionable results for market-based performance in relation to CEO turnover.

Institutional investors' ownership is far less important in Romania than in developed capital markets. For the period 2005–2010, the average institutional investors' holdings for the companies listed on the Bucharest Stock Exchange (BSE) varied between 24% in 2005 and 30% in 2010, comparatively to almost 50% for the US in 2006 (Helwege et al. 2012). Also, our sample confirms the high level of ownership concentration, with an average percentage of the voting rights owned by the largest shareholder of around 47% and a median value of 52%. Thus, more than half of the listed companies have a major shareholder, controlling at least 52% of the voting rights.

Regarding the minority shareholders' rights protection index, Romania stands slightly above the average of the transition countries (41 compared with the average value of 35.4), but with a lower index value than the average of the developed countries included in the study (the average value for the developed countries is 46.9). Claessens and Yurtoglu (2013) also emphasize a weak creditors' protection in Romania and a low efficiency of debt enforcement. Weak investor protection obstructs the function of corporate governance systems. Consequently, CEO turnover will most likely be less sensitive to firm performance when the strength of investor protection decreases (Hu and Kim 2019).

## **3. Literature Review and the Tested Hypotheses**

We structured this section in two main parts. First, we review the existing literature on CEO turnover, firm performance (Section 3.1), corporate governance (Section 3.2), and also in connection with various financial indicators for leverage, dividend policy, and sector homogeneity (Section 3.3). There is a large body of empirical literature examining the impact of a wide range of economic, social, financial, and corporate governance determinants for CEO turnover. Then, in the second step, we propose three new determinants with corresponding hypotheses for foreign CEO, female CEO, and political influences on CEO turnover (Section 3.4).
