Bottom-Up Corporate Governance
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.
|Date of creation:||2005|
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