CEO Assessment and the Structure of Newly Formed Boards

David J. Denis, Diane K. Denis and Mark D. Walker

The Review of Financial Studies, 2015, vol. 28, issue 12, 3338-3366

Abstract: Following corporate spinoffs, unit boards are formed from scratch. We find that these "de novo" boards are smaller, more independent, include more outside directors with relevant industry expertise, and derive more industry expertise from outsiders than do industry- and size-matched peers. These differences are observed only when the unit CEO was not the CEO or a director of the pre-spinoff parent firm—that is, when there is a greater need to assess the CEO's ability and match with the firm. We conclude that the need for CEO assessment is an important element of the structure of newly formed boards.

Date: 2015
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