Ownership or Performance :

This paper studies the turnover of board of directors members in a sample of 72 companies listed on the Milan Stock Exchange during the period 1988-1996. In particular we are able to shed light on the relationships between turnover and inside/outside ownership, and turnover and control change. We find that there is a statistically significant and negative relationship between firm performance and CEO turnover and that this relationship depends on the ownership structure of firms. In particular, inside ownership insulates managers from disciplinary turnover while outside ownership increases turnover-performance sensitivity. Firms that experienced a change in the controlling shareholder have both higher turnover and a stronger turnover-performance relationship. The empirical evidence supports the hypothesis that changes in control are an extreme form of turnover. Also the turnover of top executives exhibits a negative relationship with performance. Board turnover instead is unrelated to performance but is related to the firm’s ownership structure. Overall our findings suggest that the characteristics of the Italian economy deeply affect the turnover of directors and have implications that go beyond the specific case study.