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The retention of underperforming CEOs and the implications on collusion : Controlling management and preventing collusion by strengthening the independence of the board

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Title The retention of underperforming CEOs and the implications on collusion
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Sub Title

Controlling management and preventing collusion by strengthening the independence of the board

Material Type Videos
Author(English)

Korea Development Institute

Publisher

[Sejong] : Korea Development Institute

Date 2016-12
Subject Country South Korea(Asia and Pacific)
Language Korean
File Type Link
Subject Economy < General
Industry and Technology < Entrepreneurship
Holding Korea Development Institute
License

Abstract

Is performance sufficiently reflected in the turnover rate of CEOs? Analysis of statistical data reveals that the probability of CEO retention in cartel firms is relatively higher than in non-cartel firms. Accordingly, this study aims to examine the CEO turnover rate in line with performance and draw upon a policy direction for implementing a socially desirable incentive mechanism. An examination into Korean firm data reveals that, in cartel firms, the probability of CEO replacement increases as the performance of the overall industry declines. On the other hand, in non-cartel firms, the probability significantly increases as the CEO’s relative performance deteriorates compared to that of rival firms. In fact, due to the low correlation rate between relative performance and CEO replacement, CEOs of cartel firms are more inclined to collude with competing firms, rather than outperform them.