Internal governance and investment efficiency: The role of non-CEO executives

Yifan Zhang, Dongmin Kong and Hening Liu

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: In this paper, we reveal an overlooked but important role of corporate governance on investment efficiency: non-CEO executives. Internal governance, measured as the fraction of independent executives appointed before the current CEO, leads to a better investment efficiency. The governance effect is pronounced when executives have stronger incentives, such as a longer horizon or a higher shareholding ratio. To explain the promotion of investment efficiency, we find that independent executives help constrain CEO power. They also contribute to better quality of accounting information. Moreover, internal governance by non-CEO executives is hardly affected by external supervisors, and other internal governance mechanisms fail to enhance firms' investment efficiency, indicating the unique monitoring role of independent non-CEO executives. Our study demonstrates the significance of a democratic management team and the necessity to limit the power of CEOs to appoint new executives.

Keywords: Internal governance; Investment efficiency; Non-CEO executives (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521924006963
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006963

DOI: 10.1016/j.irfa.2024.103764

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().