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Globalization of Monitoring Practices: The Case of American Influences on the Dismissal Risk of European CEOs

Author

Listed:
  • Oxelheim, Lars

    () (Research Institute of Industrial Economics (IFN))

  • Randoy, Trond

    (University of Agder)

Abstract

This study examines globalization of monitoring practices by focusing on how American (U.S.) influences on European firms impact the dismissal risk for these firms' CEOs. Specifically, we argue that the stronger short term orientation of the American corporate governance system increase the dismissal performance sensitivity faced by European CEOs, indirectly and directly. The former materializes via European firms cross-listing on U.S. exchanges, the latter results from European firms hiring U.S. independent board members. Both influences are expected to result in increased dismissal performance sensitivity. Based on data from the 250 largest European publicly traded firms we find a significant increase in the dismissal sensitivity of poorly performing companies with American board members and a support for migration of American executive pay practice. However, no significant increase in dismissal performance sensitivity was identified from U.S. cross-listing. In line with our agency theory based prediction, this indicates an institutional contagion driven by the presence of U.S. board members on European corporate boards. To policy makers the message is that internationalization of boards should not be banned or restricted, since it provides owners with more options to influence the corporate governance of the firm.

Suggested Citation

  • Oxelheim, Lars & Randoy, Trond, 2013. "Globalization of Monitoring Practices: The Case of American Influences on the Dismissal Risk of European CEOs," Working Paper Series 958, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0958
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    References listed on IDEAS

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    1. Lars Oxelheim & Trond Randøy, 2005. "The Anglo-American financial influence on CEO compensation in non-Anglo-American firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 36(4), pages 470-483, July.
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    1. repec:kap:jmgtgv:v:21:y:2017:i:3:d:10.1007_s10997-016-9359-z is not listed on IDEAS
    2. Munisi, Gibson & Hermes, Niels & Randøy, Trond, 2014. "Corporate boards and ownership structure: Evidence from Sub-Saharan Africa," International Business Review, Elsevier, vol. 23(4), pages 785-796.
    3. Piekkari, Rebecca & Oxelheim, Lars & Randøy, Trond, 2013. "The Role of Language in Corporate Governance: The Case of Board Internationalization," Working Paper Series 974, Research Institute of Industrial Economics.

    More about this item

    Keywords

    Executive pay; CEO dismissal; Performance sensitivity; Foreign board membership;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M16 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - International Business Administration
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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