How do independent directors view powerful CEOs? Evidence from a quasi-natural experiment

Pornsit Jiraporn, Seksak Jumreornvong, Napatsorn Jiraporn and Simran Singh

Finance Research Letters, 2016, vol. 16, issue C, 268-274

Abstract: 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.

Keywords: Independent directors; Independent boards; Board independence; CEO power; Powerful CEOs; Sarbanes–Oxley Act (search for similar items in EconPapers)
JEL-codes: G30 G34 G38 G39 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:16:y:2016:i:c:p:268-274

DOI: 10.1016/j.frl.2015.12.008

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