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Why do firms appoint CEOs as outside directors?

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  • Fahlenbrach, Rüdiger
  • Low, Angie
  • Stulz, René M.

Abstract

Companies actively seek to appoint outside CEOs to their boards. Consistent with our matching theory of outside CEO board appointments, we show that such appointments have a certification benefit for the appointing firm. CEOs are more likely to join boards of large established firms that are geographically close, pursue similar financial and investment policies, and have comparable governance to their own firms. The first outside CEO director appointment has a higher stock-price reaction than the appointment of another outside director. Except for a decrease in operating performance following the appointment of an interlocked director, CEO directors do not affect the appointing firm's operating performance, decision-making, and CEO compensation.

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Bibliographic Info

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

Volume (Year): 97 (2010)
Issue (Month): 1 (July)
Pages: 12-32

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Handle: RePEc:eee:jfinec:v:97:y:2010:i:1:p:12-32

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

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Keywords: Director independence New director appointment Director influence Interlocked boards Governance;

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References

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Citations

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Cited by:
  1. Meneghetti, Costanza, 2012. "Managerial Incentives and the Choice between Public and Bank Debt," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 65-91.
  2. Drobetz, Wolfgang & von Meyerinck, Felix & Oesch, David & Schmid, Markus, . "Is Board Industry Experience a Corporate Governance Mechanism?," Working Papers on Finance 1401, University of St. Gallen, School of Finance.
  3. Benjamin Balsmeier & Achim Buchwald & Heiko Peters, 2010. "Auswirkungen von Mehrfachmandaten deutscher Vorstands- und Aufsichtsratsvorsitzender auf den Unternehmenserfolg," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(5), pages 547-570, October.
  4. Haidan Li & Yiming Qian, 2011. "Outside CEO directors on compensation committees: whose side are they on?," Review of Accounting and Finance, Emerald Group Publishing, vol. 10(2), pages 110-133, June.
  5. Andres, Christian & Fernau, Erik & Theissen, Erik, 2013. "Should I stay or should I go? Former CEOs as monitors," CFR Working Papers 12-02 [rev.], University of Cologne, Centre for Financial Research (CFR).
  6. Renée Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2008. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," NBER Working Papers 14486, National Bureau of Economic Research, Inc.
  7. Camelia M. Kuhnen & Andrea L. Eisfeldt, 2010. "CEO Turnover in a Competitive Assignment Framework," 2010 Meeting Papers 1081, Society for Economic Dynamics.
  8. von Meyerinck, Felix & Oesch, David & Schmid, Markus, 2012. "Is Director Industry Experience Valuable?," Working Papers on Finance 1217, University of St. Gallen, School of Finance.
  9. Muravyev, Alexander & Talavera, Oleksandr & Weir, Charlie, 2014. "Performance Effects of Appointing Other Firms' Executive Directors to Corporate Boards: An Analysis of UK Firms," IZA Discussion Papers 7962, Institute for the Study of Labor (IZA).
  10. Masulis, Ronald W. & Wang, Cong & Xie, Fei, 2012. "Globalizing the boardroom—The effects of foreign directors on corporate governance and firm performance," Journal of Accounting and Economics, Elsevier, vol. 53(3), pages 527-554.
  11. Sun, Jerry & Cahan, Steven F. & Emanuel, David, 2009. "Compensation committee governance quality, chief executive officer stock option grants, and future firm performance," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1507-1519, August.

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