*3.2. CEO Turnover and Corporate Governance*

Country and firm characteristics in terms of corporate governance, ultimately resulting in a specific level of control of the managerial activity, are also expected to influence forced CEO turnover decisions. The existing literature proved that the CEO–Chairman duality is associated with a lower probability of forced turnovers (Kato and Long 2006; Helwege et al. 2012; Hu and Leung 2012; Hazarika et al. 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. On the other hand, the separation between CEO and Chairman leads to more efficient board control and improves firm performance.

CEO turnover occurrence is also related to the board's characteristics—such as size and independence. It is expected that a higher number of board members is associated with a higher level of managerial control, especially when independent directors prevail in the board. On the other hand, when the Board of Directors has numerous members, it could be more difficult to make changes in the company. Brunello et al. (2003) found a direct link between board size and the probability of forced CEO turnover. However, for Ukraine, a post-communist country, Muravyev et al. (2010) found that board size had no statistically or economically significant effects on the probability of CEO turnover.

To protect the interests of minority shareholders, the BSE Corporate Governance Code (2015) recommends that "the Board and its committees should have the appropriate balance of skills, experience, gender diversity, knowledge and independence to enable them to effectively perform their respective duties and responsibilities. It is recommended for the majority of non-executive members of the Board of Directors or Supervisory Board to be independent." Additionally, the same Corporate Governance Code (2015) recommends that "the majority of the members of the Board of Directors should be non-executive." Even though the Code does not establish an exact number or a proportion of independent directors, the Romanian listed companies have chosen to follow this recommendation. Helwege et al. (2012) provide weak evidence on board independence being associated with higher probability of CEO turnover. On the other hand, there are studies showing that companies with an independent board experience higher of forced CEO turnover to performance (Guo and Masulis 2015).

Ownership concentration is important to determine a forced CEO turnover. Many empirical studies show that listed companies in Western Europe, but also in East Asia, the Middle East, or Latin America have large shareholders (see, among others, Claessens and Djankov 2000; Barca and Becht 2001; Faccio and Lang 2002). The presence of large shareholders is also typical for Romania and other post-communist Eastern European countries. For the companies listed on the first and second tiers on the BSE, the average first shareholder ownership is 47.42%.

Concentrated ownership is considered by some authors more favorable for good corporate governance (Shleifer and Vishny 1997), based on the agency problem arising from the separation of ownership and control. On the contrary, when using asymmetric information models, different authors prove that a higher ownership concentration affects firm performance or dividend policy (see Holmström and Tirole 1983; Aghion and Tirole 1997; Bolton and Von Thadden 1998, or studies for CEE countries such as Hanousek et al. 2007; Bena and Hanousek 2008; Dragotă et al. 2013, among others). The high stake owned by the largest shareholder can also lead to a decrease in the interest of the companies in promoting firm-level corporate governance measures, as the controlling shareholder has additional and more effective instruments to monitor the firm (Bollaert and Dilé 2009).

The literature predicts a lower probability of forced CEO turnover associated with a concentrated ownership (see, for example, Parrino 1997; Brunello et al. 2003), while Kato and Long (2006) recognize the usefulness of ownership concentration as a control variable in order to eliminate endogeneity problems.

Institutional ownership is also important to explain CEO turnover occurrence, especially due to the commonly known activism, doubled by the advanced financial skills of the institutional investors.

It is expected that these "highly skilled and well-resourced professional shareholders would make informed use of their rights, promoting good corporate governance in companies in which they invest" (OECD 2011). Kaplan and Minton (2012), following the methodology applied by Cremers and Nair (2005), used the cumulative percentage of shares held in each firm by the large institutional shareholders (who own more than 5% ownership of the firm's outstanding shares). They found that the institutional investors' activism increases the probability of CEO turnover. Similar results can be found in the work of Brav et al. (2008) and Del Guercio et al. (2008). Parrino et al. (2003) found decreases of the share owned by institutional investors prior to forced turnovers, which can be considered as proof of the "voting with their feet" phenomenon.

The studies on agency models in connection with CEO ownership can be divided into at least two distinct groups. First, it is considered that CEO ownership can reduce the agency conflicts between managers and shareholders (especially with minority shareholders), because an executive with stocks (and stock options) is "in the same boat" as the rest of the owners. Contrary to this view, the second set of studies argues that an owner–manager can distort the main performance objectives of the company for private benefits, affecting the market prices and/or using his/her close ties with the controlling shareholders (Isakov and Weisskopf 2014). This could certainly be the case of the Romanian listed companies, controlled by major shareholders. In this context, minority shareholders can still be protected if managers (or controlling shareholders) develop a reputation for treating outside shareholders well (Gomes 2000; Maury and Pajuste 2002).

The results of previous studies confirm the negative correlation between CEO ownership and the probability of forced turnover (see, among others, Brunello et al. 2003; and Campbell et al. 2011). Muravyev et al. (2010) also found evidence of managerial ownership supporting entrenchment. CEO ownership, like board ownership (Helwege et al. 2012), becomes a mechanism of alleviating shareholder–manager agency conflicts and is expected to be negatively correlated to CEO forced turnover.

Particularly when CEOs are significant shareholders, it is possible that they mainly represent the interests of the controlling shareholders, more so than those of the firms. When the CEO is appointed directly by the controlling shareholder, the criteria for measuring the CEO's performance may possibly be connected more to the effectiveness in protecting the interests of the controlling shareholder, rather than those of the firm. In our models, we took into account the simple presence of the CEO as a shareholder and then we considered his/her presence as a significant shareholder (owning 5% or more of the voting rights).
