CEO Succession from Family CEO to Professional CEO - Agency Problem and The Role of Family Member in BOD -

In this study, we explore the process of CEO succession from family CEO to professional CEO (F-P). From the agency theory perspective, CEO succession from family CEO to professional CEO can occur agency problem. this problem, agency theory suggests internal control mechanisms such as outside director system which has been adopted in Korea after financial crisis in 1997. However, Korean situation is somewhat different from the situation which is assumed in agency theory, separation of ownership and control. Family CEOs are prevalent in Korea, in which th separation is hardly expected. Under this different situation from agency theory, it is hard to expect that the internal control mechanism, i.e. outside director system based on agency theory works as a monitoring mechanism as is expected in agency theory. Thus, it is necessary to examine if the outside director system stemmed from agency theory can work as an internal control mechanism for possible agency problem occurred by F-P succession. According to previous research, family members in board of directors rather play this monitoring role in Korean firms. Thus, we suggest that, in F-P CEO succession, the monitoring mechanism is not working by outside director system but by family members in BOD. The results show that CEO successions of (F-P) are more likely to take place when family members exist on the board as a control mechanism. Since Korea does not have a total separation of ownership and control, this phenomenon of CEO succession process from (F-P) will more likely happen.