Profitability and Executive Board Turnover in Russian Banks
Authors: Kudryashova Aleksandra , Solntsev Sergey 
Published: November 2019

This paper examines profitability as a factor in the turnover of poorly-performing executives in Russian banks, andhow this acts as a mechanism of good corporate governance. It is intended to identify and measure the relative effectsof different determinants on executive turnover, and thus highlight the practical sets of circumstances where turnoveris most likely. A relatively unique perspective on the study of corporate governance, we intend to demonstrate anaspect of corporate accountability for commercial performance and shed light on high-level manifestations of reactivemanagement practices.In order to construct the most realistic and robust analysis, we will take into account the idiosyncracies of the companiesand individuals involved in this process, and also consider the influence of external economic and social developmentswhere appropriate. The empirical data in this research consists of 3251 observations concerning members of theexecutive boards of the 50 largest Russian banks from 2005 till 2014. Contemporary accounting data and other financialand economic indicators for these companies is weighed alongside personal information about the banks executives.Descriptive statistics and econometric approaches are utilised in order to parse the provided data and construct acomprehensive explanatory model. Our interpretative process includes the application of probit regressions and OLSpanel regressions with fixed effects.The results of this evaluation may be summarised as follows. We found out that a decrease in return on equity (ROE)and a decrease in return on assets (ROA) leads to a higher probability of executive turnover. Changes in the EBITDA tototal assets ratio did not correlate with executive turnover probability. State-controlled banks showed a higher executiveturnover rate. A greater turnover rate during pre-crisis 2006-2007 may have been caused by banks’ demand for newexecutives, in their ambition to attain extensive growth. A higher turnover rate in 2014 could have been inspired by theeconomic sanctions again Russia, or influenced by a recent policy of the Central Bank of the Russian Federation aimingat a “clearance” of the banking system. Finally, it was demonstrated that personal characteristics of the members of theexecutive boards did not have a significant influence on executive turnover probability.This study contributes to the limited literature in the area by analysing the determinants of turnover of members of theexecutive boards of banks depending on the profitability of banks and other characteristics. This is the first study of thiskind, based on extensive Russian data which allows for the appraisal of the mechanisms of corporate governance. Whilea primary limitation of this study is that only large banks were included in the sample, the very presentation of theseconclusions carries significant weight in terms of defining methodological parameters for future research. This area isripe for further investigation. For example, it is immediately apparent that the results may be very different for small ormedium-sized banks, let alone other kinds of financial and commercial institutions.