Why do firms appoint CEOs as outside directors?

Journal of Financial Economics

Volumn 97, Issue 1, 2010, Pages 12-32

  Fahlenbrach, Rüdiger ^a   Low, Angie ^b   Stulz, René M ^c,d,e  

^a EPFL   (Switzerland)

^b NANYANG TECHNOLOGICAL UNIVERSITY   (Singapore)

^c OHIO STATE UNIVERSITY   (United States)

^d NATIONAL BUREAU OF ECONOMIC RESEARCH   (United States)

^e European Corporate Governance Institute   (Belgium)

Author keywords

Director independence; Director influence; Governance; Interlocked boards; New director appointment

Indexed keywords

EID: 77952675289     PISSN: 0304405X     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jfineco.2010.01.003     Document Type: Article

References (54)

1. Adams R., Ferreira D. A theory of friendly boards. Journal of Finance 2007, 62:217-250.
2. Adams, R., Hermalin, B., Weisbach, M. The role of boards of directors in corporate governance: a conceptual framework and survey. Journal of Economic Literature, forthcoming.
3. Agrawal A., Knoeber C. Do some outside directors play a political role?. Journal of Law and Economics 2001, 44:179-198.
4. Almazan A., De Motta A., Titman S., Uysal V. Financial structure, acquisition opportunities, and firm locations. Journal of Finance 2010, 65:529-563.
5. Barber B., Lyon J. Detecting abnormal operating performance: the empirical power and specification of test statistics. Journal of Financial Economics 1996, 41:359-399.
6. Bebchuk L., Fried J. Pay without Performance: The Unfulfilled Promise of Executive Compensation 2004, Harvard University Press, Cambridge, MA.
7. Bertrand M., Schoar A. Managing with style: the effect of managers on firm policies. Quarterly Journal of Economics 2003, 118:1169-1208.
8. Bhagat S., Black B. The non-correlation between board independence and long-term firm performance. Journal of Corporation Law 2001, 27:231-273.
9. Booth J., Deli D. Factors affecting the number of outside directorships held by CEOs. Journal of Financial Economics 1996, 40:81-104.
10. Booth J., Deli D. On executives of financial institutions as outside directors. Journal of Corporate Finance 1999, 5:227-250.
11. Byrd J., Hickman K. Do outside directors monitor managers? Evidence from tender offer bids. Journal of Financial Economics 1992, 32:195-221.
12. Chen, D., 2007. The monitoring and advisory functions of corporate boards: theory and evidence. Unpublished Working Paper, Duke University.
13. Chhaochharia V., Grinstein Y. CEO compensation and board structure. Journal of Finance 2009, 64:231-261.
14. Core J., Guay W. Estimating the value of employee stock option portfolios and their sensitivities to price and volatility. Journal of Accounting Research 2002, 40:613-630.
15. Core J., Holthausen R., Larcker D. Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics 1999, 51:371-406.
16. Cotter J., Shivdasani A., Zenner M. Do independent directors enhance target shareholder wealth during tender offers?. Journal of Financial Economics 1997, 43:195-218.
17. Coval J., Moskowitz T. Home bias at home: local equity preference in domestic portfolios. Journal of Finance 1999, 54:2045-2073.
18. Fahlenbrach R. Shareholder rights, boards, and CEO compensation. Review of Finance 2008, 13:81-113.
19. Faleye, O., 2007. Looking out for their own? CEO directors and executive compensation. Unpublished Working Paper, Northeastern University.
20. Fich E. Are some outside directors better than others? Evidence from director appointments by Fortune 1000 firms. Journal of Business 2005, 78:1943-1971.
21. Fich E., Shivdasani A. Financial fraud, director reputation, and shareholder wealth. Journal of Financial Economics 2007, 86:306-336.
22. Gompers P., Ishii J., Metrick A. Corporate governance and equity prices. Quarterly Journal of Economics 2003, 118:107-155.
23. Graham, J., Wu, Y., 2007. Executive compensation, interlocked compensation committees, and the 162(M) cap on tax deductibility. Unpublished Working Paper, Duke University.
24. Güner B., Malmendier U., Tate G. Financial expertise of directors. Journal of Financial Economics 2008, 88:323-354.
25. Hallock K. Reciprocally interlocking boards of directors and executive compensation. Journal of Financial and Quantitative Analysis 1997, 32:331-344.
26. Harford J. Takeover bids and target directors' incentives: the impact of a bid on directors' wealth and board seats. Journal of Financial Economics 2003, 69:51-83.
27. Hermalin B., Weisbach M. The determinants of board composition. RAND Journal of Economics 1988, 19:589-606.
28. Hermalin B., Weisbach M. The effects of board composition and direct incentives on firm performance. Financial Management 1991, 20:101-112.
29. Hermalin B., Weisbach M. Endogenously chosen boards of directors and their monitoring of the CEO. American Economic Review 1998, 88:96-118.
30. Huson M., Malatesta P., Parrino R. Managerial succession and firm performance. Journal of Financial Economics 2004, 74:237-275.
31. Jensen M., Meckling W. Theory of the firm: managerial behavior, agency costs, and ownership structure. Journal of Financial Economics 1976, 3:305-360.
32. Jenter, D., Kanaan, F., 2008. CEO turnover and relative performance evaluation. Unpublished Working Paper, Massachusetts Institute of Technology.
33. Kaplan, S., Minton, B., 2006. How has CEO turnover changed? Increasingly performance sensitive boards and increasingly uneasy CEOs. Unpublished Working Paper, Ohio State University.
34. Linck J., Netter J., Yang T. Effects and unintended consequences of the Sarbanes-Oxley Act on corporate boards. Review of Financial Studies 2009, 9:3287-3328.
35. Lipton M., Lorsch J. A modest proposal for improved corporate governance. Business Lawyer 1992, 48:59-77.
36. Lorsch J., Maciver E. Pawns or Potentates: The Reality of America's Corporate Boards 1989, Harvard Business School Press, Cambridge, MA.
37. Mace M. Directors: Myth and Reality 1986, Harvard Business School Press, Cambridge, MA.
38. Masulis, R., Mobbs, S., 2008. Are all inside directors the same? CEO entrenchment or board enhancement. Unpublished Working Paper, Vanderbilt University.
39. Moeller S., Schlingemann F., Stulz R. Wealth destruction on a massive scale? A study of acquiring-firm returns in the recent merger wave. Journal of Finance 2005, 60:757-782.
40. Moeller T. Let's make a deal! How shareholder control impacts merger payoffs. Journal of Financial Economics 2005, 76:167-190.
41. Murphy K. Executive compensation. Handbook of Labor Economics 1999, 2485-2563. Elsevier Science, North-Holland, Amsterdam. O. Ashenfelter, D. Card (Eds.).
42. Perry T., Peyer U. Board seat accumulation by executives: a shareholder's perspective. Journal of Finance 2005, 60:2083-2123.
43. Perry T., Shivdasani A. Do boards affect performance? Evidence from corporate restructuring. Journal of Business 2005, 78:1403-1431.
44. Pirinsky C., Wang Q. Does corporate headquarters location matter for stock returns?. Journal of Finance 2006, 61:1991-2015.
45. Richardson, S., Tuna, I., Wysocki, P., 2003. Accounting for taste: board member preferences and corporate policy choices. Unpublished Working Paper, University of Pennsylvania.
46. Shivdasani A., Yermack D. CEO involvement in the selection of new board members: an empirical analysis. Journal of Finance 1999, 54:1829-1853.
47. Staiger D., Stock J. Instrumental variables regression with weak instruments. Econometrica 1997, 65:557-586.
48. Vancil R. Passing the Baton: Managing the Process of CEO Succession 1987, Harvard Business School Press, Cambridge, MA.
49. Warner J., Watts R., Wruck K. Stock prices and top management changes. Journal of Financial Economics 1988, 20:461-492.
50. Weisbach M. Outside directors and CEO turnover. Journal of Financial Economics 1988, 20:431-460.
51. Yermack D. Higher market valuation of companies with a small board of directors. Journal of Financial Economics 1996, 40:185-211.
52. Yermack D. Remuneration, retention, and reputation incentives for outside directors. Journal of Finance 2004, 59:2281-2308.
53. Yermack D. Golden handshakes: separation pay for retired and dismissed CEOs. Journal of Accounting and Economics 2006, 41:237-256.
54. Zhou X. Understanding the determinants of managerial ownership and the link between ownership and performance: comment. Journal of Financial Economics 2001, 62:559-571.