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Why do firms appoint CEOs as outside directors?

Author Info

  • 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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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

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  • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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