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Monitoring Managers: Does it Matter?Francesca CornelliLondon Business School; Centre for Economic Policy Research (CEPR) Zbigniew W. KominekEuropean Bank for Reconstruction and Development (EBRD) Alexander LjungqvistNew York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN) February 20, 2012 Journal of Finance, Forthcoming ECGI - Finance Working Paper No. 271/2010 Abstract: We study how well-incentivized boards monitor CEOs and whether such monitoring improves performance. Using unique, detailed data on boards’ information sets and decisions for a large sample of private-equity-backed firms, we find that gathering information helps boards learn about CEO ability. ‘Soft’ information plays a much larger role than hard data, such as the performance metrics that prior literature focuses on, and helps avoid firing the CEO for bad luck or in response to adverse external shocks. We show that governance reforms increase the effectiveness of board monitoring and establish a causal link between forced CEO turnover and performance improvements.
Number of Pages in PDF File: 63 Keywords: Corporate governance, large shareholders, boards of directors, active monitoring, CEO turnover, legal reforms, transition economies, private equity JEL Classification: G34, G24, G32, K22, O16, P21 Accepted Paper SeriesDate posted: November 18, 2009 ; Last revised: February 20, 2012Suggested CitationContact Information
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