The Effects of Internal Markets on CEO Turnover in Korean Business Groups

Despite extensive research on factors influencing the turnover of Chief Executive Officers (CEOs), studies focusing specifically on CEO succession within business group-affiliated firms, are relatively scarce. Additionally, while some research has investigated the impact of business group affiliations on the performance-turnover relationship, the findings have been inconsistent. To address this gap, this study focuses on the internal markets exclusive to firms affiliated with business groups. Building on existing literature on CEO succession and business groups, I hypothesize that the magnitude of internal transactions in products and services diminishes the effect of firm performance on CEO turnover. Further, I hypothesize that the extent of internal capital investment from other affiliated firms and the size of the internal labor market intensify this effect. The analysis, based on CEO turnovers in listed non-financial firms in business groups that were subject to mutual investment restrictions from 2010 to 2015, supports the hypotheses. This study contributes to the existing literature on CEO succession in business groups by emphasizing that the groups' internal environment is pivotal in shaping decision-makers' perceptions and evaluations during the succession process.