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

Pornsit Jiraporn, Seksak Jumreornvong, Napatsorn Jiraporn, Simran Singh

Research output: Contribution to journalArticlepeer-review

13 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)268-274
Number of pages7
JournalFinance Research Letters
Volume16
DOIs
StatePublished - Feb 1 2016

All Science Journal Classification (ASJC) codes

  • Finance

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