The effects of family entrenchment and board independence on CEO turnover

This study investigates the effectiveness of board monitoring in listed family firms, focusing on poorly-performing CEO turnover decisions. In family firms, CEO turnover-performance sensitivity (i.e., the likelihood to replace a CEO in response to poor performance) can be weakened by family owners prioritizing personal ties or long-term control over performance-based decisions. This study examines how the composition of the board, particularly the presence of family directors and independent-dominated boards, affects this sensitivity. The analysis is based on a sample of 891 firm-year observations from 91 Italian listed family firms over the period 2010–2020. We measure CEO turnover-performance sensitivity based on forced turnover events and accounting performance indicators, such as return on assets (ROA) and industry-adjusted ROA, both for the year preceding turnover events. Our findings reveal that family entrenchment is associated with weaker CEO turnover-performance sensitivity. Conversely, independent-dominated boards demonstrate stronger sensitivity, highlighting their role in counterbalancing family influence. These results contribute to the literature on corporate governance in family firms and provide policy implications for improving board monitoring mechanisms in concentrated ownership settings.