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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- Benjamin E. Hermalin & Michael S. Weisbach, 2001.
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4224-01, Massachusetts Institute of Technology (MIT), Sloan School of Management.
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- Vafeas, Nikos, 1999. "Board meeting frequency and firm performance," Journal of Financial Economics, Elsevier, vol. 53(1), pages 113-142, July.
- 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.
- 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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