Does IPO Make A Difference? Empirical Evidence Of The Relation Between Companies' IPO And CEO Turnover

In this article we analyze the turnover dynamics of CEOs before and after the company IPO. CEO turnover depends on a number of factors, related to company, personal career and traits. The empirical analysis conducted on the non-financial Italian companies listed on the Borsa Italiana in the period 2000-2008 shows that i) the likelihood of CEO turnover is higher in the post-IPO than in the pre-IPO period; ii) the correlation between the likelihood of CEO turnover and company financial performance is stronger in the post-IPO rather than in the pre-IPO period. From the theory point of view, the paper contributes to the CEO succession literature extending the use of the managerial entrenchment theory to the pre-IPO and post-IPO periods of the sampled firms. Once listed, firms have new shareholders and a higher fragmentation of equity. New shareholders are likely to have no personal relationships or weaker relationships with the company CEO vis-à-vis pre-IPO shareholders. This let us apply the managerial entrenchment theory to pre-IPO and post-IPO periods. According to it, we expect accounting measures of performance to have more impact on CEO turnover in the post-IPO period than in the pre-IPO period. From the practice point of view, our results are relevant as they show firms that want to go public that in relation to their IPO they will be likely to sustain not only higher information and communication costs, but also organization costs associated to CEO turnover. The consciousness of the increased likelihood of CEO turnover after IPO could lead some firms (mainly family firms) to the decision not to go public. CEOs, for their part, should carefully consider the choice of listing their firms as this decision could affect their own position after IPO.