CEO Tenure, Board Composition and Regulation

Abstract:     
This paper addresses three rarely examined empirical issues relating to corporate boards using a sample of 157 firms over the period 1974 to 1983. First, various effects of increasing the proportion of "outsiders" on the board of directors are examined. We utilize survival (or "hazard") analysis to test for the effects of changing this proportion on CEO tenure. Firm size, board size, and CEO age are included in the analysis. Second, we examine the effect of regulation on tenure, where we consider financial and utility regulation. Finally, we discuss the effects of a number of variables, particularly regulation, on the proportion of outsiders itself. We find that both a higher proportion of outsiders and utility regulation significantly lowers the survival of the CEO at the firm, but that financial regulation significantly increases survival. We also find that regulation increases the proportion of outsiders on the board, and correct for endogeneity where necessary. We conclude that this is consistent with a "political pressure hypothesis" suggested by several commentators.

Number of Pages in PDF File: 32

JEL Classification: C41, D21, L51

working papers series