TY - JOUR
T1 - How do independent directors view powerful CEOs? Evidence from a quasi-natural experiment
AU - Jiraporn, Pornsit
AU - Jumreornvong, Seksak
AU - Jiraporn, Napatsorn
AU - Singh, Simran
N1 - Publisher Copyright:
© 2015.
PY - 2016/2/1
Y1 - 2016/2/1
N2 - Prior research shows that powerful CEOs can exacerbate the agency conflict, resulting in adverse corporate outcomes. Exploiting an exogenous shock introduced by the passage of the Sarbanes-Oxley Act, we explore whether board independence mitigates CEO power. Based on difference-in-difference estimation, our evidence shows that independent directors view powerful CEOs unfavorably. Board independence diminishes CEO power by more than a quarter. Based on a quasi-natural experiment, our research design is less vulnerable to the omitted-variable bias and reverse causality and therefore suggests that the effect of board independence on CEO power is likely causal.
AB - Prior research shows that powerful CEOs can exacerbate the agency conflict, resulting in adverse corporate outcomes. Exploiting an exogenous shock introduced by the passage of the Sarbanes-Oxley Act, we explore whether board independence mitigates CEO power. Based on difference-in-difference estimation, our evidence shows that independent directors view powerful CEOs unfavorably. Board independence diminishes CEO power by more than a quarter. Based on a quasi-natural experiment, our research design is less vulnerable to the omitted-variable bias and reverse causality and therefore suggests that the effect of board independence on CEO power is likely causal.
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U2 - 10.1016/j.frl.2015.12.008
DO - 10.1016/j.frl.2015.12.008
M3 - Article
AN - SCOPUS:84955277698
SN - 1544-6123
VL - 16
SP - 268
EP - 274
JO - Finance Research Letters
JF - Finance Research Letters
ER -