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Corporate governance when founders are directors

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  • Li, Feng
  • Srinivasan, Suraj
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    Abstract

    We examine chief executive officer (CEO) compensation, CEO retention policies, and mergers and acquisition (M&A) decisions in firms in which founders serve as a director with a nonfounder CEO (founder-director firms). We find that founder-director firms offer a different mix of incentives to their CEOs than other firms. Pay-for-performance sensitivity for nonfounder CEOs in founder-director firms is higher and the level of pay is lower than that of other CEOs. CEO turnover sensitivity to firm performance is also significantly higher in founder-director firms compared with nonfounder firms. Overall, the evidence suggests that boards with founder-directors provide more high-powered incentives in the form of pay and retention policies than the average US board. Stock returns around M&A announcements and board attendance are also higher in founder-director firms compared with nonfounder firms.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 102 (2011)
    Issue (Month): 2 ()
    Pages: 454-469

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    Handle: RePEc:eee:jfinec:v:102:y:2011:i:2:p:454-469

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: CEO compensation; CEO turnover; Founder; Boards of Directors; Corporate governance;

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    References

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    Cited by:
    1. Mao, Y., 2013. "Essays on leveraged buyouts," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5929606, Tilburg University.
    2. Chen, En-Te & Gray, Stephen & Nowland, John, 2012. "Multiple founders and firm value," Pacific-Basin Finance Journal, Elsevier, vol. 20(3), pages 398-415.
    3. Gallego, Francisco & Larrain, Borja, 2012. "CEO compensation and large shareholders: Evidence from emerging markets," Journal of Comparative Economics, Elsevier, vol. 40(4), pages 621-642.
    4. Feng-Li Lin, 2013. "Board Ownership and Firm Value in Taiwan - A Panel Smooth Transition Regression Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 148-160, December.
    5. Ma, Liangbo & Ma, Shiguang & Tian, Gary, 2013. "Political connections, founder-managers, and their impact on tunneling in China's listed firms," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 312-339.

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