CEOs entrenchment and shareholders' wealth

Enracinement des dirigeants et richesse des actionnaires

Benoît Pigé ()
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Benoît Pigé: LEG - Laboratoire d'Economie et de Gestion - UB - Université de Bourgogne - CNRS - Centre National de la Recherche Scientifique, IAE Franche Comté - Institut d'Administration des Entreprises de Franche Comté - Besançon - UFR SJEPG - UFR de Sciences juridiques, économiques, politiques et de gestion - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]

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Abstract: In the agency relation between the shareholders and the CEO, everybody try to reinforce his or her position. For the CEO, it means the pursuit of a better entrenchment, which allows him to reduce the risk of being dismissed. The entrenchment model develops the importance for the CEO to get internal or external connections and to make efforts in order to attain a higher performance. From a sample of 1747 annual observations concerning 258 CEOs of public firms for the 1966-1990 period, empirical measures allow us to estimate the importance of internal networks and past performance by establishing a measure of CEO entrenchment. Furthermore, we observed, for the shareholders, the existence of an optimum of CEO entrenchment which could give a better shareholder return as compared to the market.

Date: 1998
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Published in Finance Contrôle Stratégie, 1998

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