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Bottom-Up Corporate Governance

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Author Info

  • Augustin Landier

    (Crest)

  • David Sraer

    (Crest)

  • David Thesmar

    (Crest)

Abstract

In many instances, “independently-minded” top-ranking executives canimpose strong discipline on their CEO, even though they are formally underhis authority. This paper argues that the use of such a disciplining mechanismis a key feature of good corporate governance.We provide robust empirical evidence consistent with the fact that firmswith high internal governance are more efficiently run. We empirically labelas “independent from the CEO” a top executive who joined the firm beforethe current CEO was appointed. In a very robust way, firms with a smallerfraction of independent executives exhibit (1) a lower level of profitabilityand (2) lower shareholder returns after large acquisitions. These results areunaffected when we control for traditional governance measures such as boardindependence or other well-studied shareholder-friendly provisions.

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Bibliographic Info

Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2005-30.

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Length: 50
Date of creation: 2005
Date of revision:
Handle: RePEc:crs:wpaper:2005-30

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  1. Eric Van den Steen, 2005. "Organizational Beliefs and Managerial Vision," Journal of Law, Economics and Organization, Oxford University Press, vol. 21(1), pages 256-283, April.
  2. Renée B. Adams & Heitor Almeida & Daniel Ferreira, 2005. "Powerful CEOs and Their Impact on Corporate Performance," Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1403-1432.
  3. Kaplan, Steven N. & Minton, Bernadette A., 1994. "Appointments of outsiders to Japanese boards: Determinants and implications for managers," Journal of Financial Economics, Elsevier, vol. 36(2), pages 225-258, October.
  4. Benjamin E. Hermalin & Michael S. Weisbach, 2001. "Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature," NBER Working Papers 8161, National Bureau of Economic Research, Inc.
  5. Vafeas, Nikos, 1999. "Board meeting frequency and firm performance," Journal of Financial Economics, Elsevier, vol. 53(1), pages 113-142, July.
  6. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January.
  7. Bebchuk, Lucian A. & Cohen, Alma, 2005. "The costs of entrenched boards," Journal of Financial Economics, Elsevier, vol. 78(2), pages 409-433, November.
  8. Rachel M. Hayes & Paul Oyer & Scott Schaefer, 2004. "Co-Worker Complemetarity and the Stability of Top Management Teams," NBER Working Papers 10350, National Bureau of Economic Research, Inc.
  9. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
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Cited by:
  1. Francesco Lippi & Fabiano Schivardi, 2010. "Corporate Control and Executive Selection," EIEF Working Papers Series 1014, Einaudi Institute for Economics and Finance (EIEF), revised Jul 2010.
  2. Ahn, Seoungpil & Walker, Mark D., 2007. "Corporate governance and the spinoff decision," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 76-93, March.
  3. Peter Hahn & Meziane Lasfer, 2011. "The compensation of non-executive directors: rationale, form, and findings," Journal of Management and Governance, Springer, vol. 15(4), pages 589-601, November.

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