CEO turnover in family firms: the corporate transparency perspective

Abstract

We investigate the relationship between family firms and Chief Executive Officer (CEO) turnover and the moderating role of corporate transparency in this association, using firms listed on the Taiwan Stock Exchange (TSE). Using a sample of 15,726 firm-year observations from 2002 to 2019, the study employs ordinary least squares (OLS) regression techniques to estimate the research models. Several methods were applied to address endogeneity issues in our findings. Additionally, the role of tax avoidance is analyzed as an underlying mechanism in the association between corporate transparency in family firms and CEO turnover. We find a negative association between family firms and CEO turnover; however, this effect is weakened by corporate transparency. Consistent with the transparency hypothesis, corporate transparency mitigates the Type II agency problem. We also find that tax avoidance serves as an underlying mechanism in the association between corporate transparency in family firms and CEO turnover. Our study contributes to agency theory as it pertains to the Type II agency problem from a corporate transparency perspective. This is achieved by highlighting the behavior of family firms regarding CEO turnover, with our findings adding to the still scarce literature on how the dominant shareholder–minority shareholder conflict varies at different levels of corporate transparency. Policymakers should consider mandating higher levels of corporate transparency, such as more stringent disclosure requirements and regular independent audits, to mitigate the Type II agency problem in family firms. For family firm owners, embracing transparency can lead to better governance and potentially higher firm value, as it aligns more closely with minority shareholders’ interests and reduces conflicts. Minority shareholders can advocate for increased transparency through active participation in annual general meetings, thereby enhancing their ability to monitor management and influence key decisions like CEO turnover. The insights benefit broader economic and social activities by reducing conflicts between dominant and minority shareholders and promoting fairness among related parties. Our results contribute to a better understanding of the moderating role of corporate transparency in mitigating the Type II agency problem, with implications for family firm owners and shareholders.

Keywords

• ceo turnover
• family firms
• corporate transparency
• type ii agency problem
• taiwan