Third-party endorsements of CEO quality, managerial discretion, and stakeholder reactions

Theodore L. Waldron, Scott D. Graffin, Joseph F. Porac and James B. Wade

Journal of Business Research, 2013, vol. 66, issue 12, 2592-2599

Abstract: Research on the influence of third-party endorsements of CEO quality generally does not account for the context in which such signs manifest. To address this limitation, the present study examines how a CEO's level of managerial discretion shapes boards' and shareholders' responses to external endorsements of his or her quality. Managerial discretion refers to the range of strategic options that executives have at their disposal in a given business context. The findings indicate that boards only react to CEO endorsements in high-discretion settings, and this reaction is positive (i.e., more pay). In contrast, shareholders – regardless of discretion levels – positively respond to CEO endorsements in the short-term, while these responses become more equivocal over the time. These results suggest that – at least in the short term – directors more adeptly interpret and respond to external information about CEO quality than shareholders.

Keywords: CEO quality; Third-party endorsements; Managerial discretion; Corporate governance; Executive compensation; Firm market value (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:66:y:2013:i:12:p:2592-2599

DOI: 10.1016/j.jbusres.2012.05.016

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