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Bottom-Up Corporate Governance

Author

Listed:
  • Landier, Augustin
  • Sraer, David
  • Thesmar, David

Abstract

In many instances, 'independently-minded' top-ranking executives can impose strong discipline on their CEO, even though they are formally under his authority. This paper argues that the use of such a disciplining mechanism is a key feature of good corporate governance. We provide robust empirical evidence consistent with the fact that firms with high internal governance are more efficiently run. We empirically label as '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 after large acquisitions. These results are unaffected when we control for traditional governance measures such as board independence or other well-studied shareholder-friendly provisions.

Suggested Citation

  • Landier, Augustin & Sraer, David & Thesmar, David, 2006. "Bottom-Up Corporate Governance," CEPR Discussion Papers 5500, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5500
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:mulfin:v:44:y:2018:i:c:p:36-50 is not listed on IDEAS
    2. Francesco Lippi & Fabiano Schivardi, 2014. "Corporate control and executive selection," Quantitative Economics, Econometric Society, vol. 5, pages 417-456, July.
    3. repec:kap:jbuset:v:142:y:2017:i:2:d:10.1007_s10551-015-2752-8 is not listed on IDEAS
    4. Ying Dou & Sidharth Sahgal & Emma Jincheng Zhang, 2015. "Should Independent Directors Have Term Limits? The Role of Experience in Corporate Governance," Financial Management, Financial Management Association International, vol. 44(3), pages 583-621, September.
    5. Troy D. Smith, 2015. "Private Equity Investment in India: Efficiency vs Expansion," Discussion Papers 15-011, Stanford Institute for Economic Policy Research.
    6. Jain, Pawan & Jiang, Christine & Mekhaimer, Mohamed, 2016. "Executives' horizon, internal governance and stock market liquidity," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 1-23.
    7. Ahn, Seoungpil & Walker, Mark D., 2007. "Corporate governance and the spinoff decision," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 76-93, March.
    8. Cioban (Lucan) Alexandra Narcisa, 2016. "The Influence Of The Corporate Governance Mechanisms And Audit Fees On The Financial Performance Measured With Roa," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 5, pages 20-31, October.
    9. Peter Hahn & Meziane Lasfer, 2011. "The compensation of non-executive directors: rationale, form, and findings," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(4), pages 589-601, November.
    10. Tanja Artiga González & Markus Schmid & David Yermack, 2013. "Smokescreen: How Managers Behave When They Have Something To Hide," NBER Working Papers 18886, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    acquisition; corporate governance; corporate performance; executives;

    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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