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Bottom-Up Corporate Governance

Listed author(s):
  • Augustin Landier

    (TSE - Toulouse School of Economics - Toulouse School of Economics)

  • Julien Sauvagnat

    (TSE - Toulouse School of Economics - Toulouse School of Economics)

  • David Sraer

    ()

    (Bendheim Center for Finance - Princeton University)

  • David Thesmar

    ()

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

This article empirically relates the internal organization of a firm with decision making quality and corporate performance. We call "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 following large acquisitions. These results are unaffected when we control for traditional governance measures such as board independence or other well-studied shareholder friendly provisions. One interpretation is that "independently minded" top ranking executives act as a counter-power imposing strong discipline on their CEO, even though they are formally under his authority.

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Paper provided by HAL in its series Post-Print with number hal-01026127.

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Length:
Date of creation: 2012
Publication status: Published in Review of Finance, Oxford University Press (OUP): Policy F - Oxford Open Option D, 2012, 17 (1), pp.161-201. 〈10.1093/rof/rfs020〉
Handle: RePEc:hal:journl:hal-01026127
DOI: 10.1093/rof/rfs020
Note: View the original document on HAL open archive server: https://hal-hec.archives-ouvertes.fr/hal-01026127
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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  1. Bebchuk, Lucian A. & Cohen, Alma, 2005. "The costs of entrenched boards," Journal of Financial Economics, Elsevier, vol. 78(2), pages 409-433, November.
  2. 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.
  3. Vafeas, Nikos, 1999. "Board meeting frequency and firm performance," Journal of Financial Economics, Elsevier, vol. 53(1), pages 113-142, July.
  4. 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.
  5. 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.
  6. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January.
  7. 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.
  8. Rachel M. Hayes & Paul Oyer & Scott Schaefer, 2006. "Coworker Complementarity and the Stability of Top-Management Teams," Journal of Law, Economics and Organization, Oxford University Press, vol. 22(1), pages 184-212, April.
  9. Benjamin E. Hermalin & Michael S. Weisbach, 2003. "Boards of directors as an endogenously determined institution: a survey of the economic literature," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 7-26.
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