Co-opted directors and powerful CEOs: evidence from the CEO pay slice (CPS)

Pradit Withisuphakorn, Pornsit Jiraporn

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We explore the effect of co-opted directors on chief executive officer (CEO) power. Co-opted directors are those appointed after the incumbent CEO assumes office and are found by prior research to represent a weakened governance mechanism. Our evidence reveals that co-opted directors lead to less powerful CEOs, consistent with the substitution effect. Because co-opted directors impose less stringent oversight, the CEO is able to exercise a great deal of latitude in running the firm. Therefore, it is less necessary for the CEO to command so much power where more directors are co-opted, hence leading to less powerful CEOs. In other words, co-opted directors substitute for strong CEO power. Crucially, we find that board co-option exhibits much more explanatory power than does board independence, which has been the primary measure of board effectiveness in the literature.

Original languageEnglish (US)
Pages (from-to)381-386
Number of pages6
JournalApplied Economics Letters
Volume24
Issue number6
DOIs
StatePublished - Mar 30 2017

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Chief executive officer
Oversight
Incumbents
Governance mechanisms
Board independence
Exercise
Substitution effect
Board effectiveness
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All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

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abstract = "We explore the effect of co-opted directors on chief executive officer (CEO) power. Co-opted directors are those appointed after the incumbent CEO assumes office and are found by prior research to represent a weakened governance mechanism. Our evidence reveals that co-opted directors lead to less powerful CEOs, consistent with the substitution effect. Because co-opted directors impose less stringent oversight, the CEO is able to exercise a great deal of latitude in running the firm. Therefore, it is less necessary for the CEO to command so much power where more directors are co-opted, hence leading to less powerful CEOs. In other words, co-opted directors substitute for strong CEO power. Crucially, we find that board co-option exhibits much more explanatory power than does board independence, which has been the primary measure of board effectiveness in the literature.",
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Co-opted directors and powerful CEOs : evidence from the CEO pay slice (CPS). / Withisuphakorn, Pradit; Jiraporn, Pornsit.

In: Applied Economics Letters, Vol. 24, No. 6, 30.03.2017, p. 381-386.

Research output: Contribution to journalArticle

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