I test whether corporate governance is ineffective in emerging markets by
estimating the link between CEO turnover and firm performance for over 1,200
firms in eight emerging markets. While previous papers on corporate governance
in emerging markets have studied corporate governance mechanisms, such as
concentrated ownership, I study a corporate governance outcome: are poorly
performing managers replaced? Others have answered this question in the
affirmative for the United States and other developed countries. This paper is the
first to address this question for emerging markets.
I find two main results. First, CEOs of emerging market firms are more
likely to lose their jobs when their firm’s performance is poor, suggesting
corporate governance is not ineffective in emerging markets. The magnitude of
the relationship is surprisingly similar to what Kaplan (1994a) found for the
United States. Second, for the subset of firms with a large domestic shareholder,
there is no link between CEO turnover and firm performance. For this subset of
emerging market firms, corporate governance appears to be ineffective.