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Bottom-Up Corporate Governance

Author

Listed:
  • Augustin Landier

    (Crest)

  • David Sraer

    (Crest)

  • David Thesmar

    (Crest)

Abstract

This paper empirically relates the internal organization of a firm with decision making quality and corporate performance. We call "independent from the CEO" a top executive who joined the firm before the current CEO was appointed. In a very robust way, firms with a smaller fraction of independent executives exhibit (1) a lower level of profitability and (2) lower shareholder returns following large acquisitions. These results are unaffected when we control for traditional governance measures such as board independence or other well-studied shareholder friendly provisions. One interpretation is that "independently minded" top ranking executives act as a counter-power imposing strong discipline on their CEO, even though they are formally under his authority.

Suggested Citation

  • Augustin Landier & David Sraer & David Thesmar, 2005. "Bottom-Up Corporate Governance," Working Papers 2005-30, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2005-30
    as

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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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