An Empirical Investigation of Internal Governance
Rajesh K. Aggarwal
Texas Christian University
University of Utah - Department of Finance
December 26, 2013
AFA 2011 Denver Meetings Paper
Acharya, Myers, and Rajan (2011) theorize that CEO rent extraction is constrained by subordinate managers. This internal governance works best when the relative contributions of CEOs and managers to output are balanced. Consistent with the theory, we ﬁnd a hump-shaped relation between relative contributions and corporate investment, and between relative contributions and ﬁrm performance. These hump-shaped relations are stronger for ﬁrms with older CEOs, for ﬁrms more likely to promote insiders to CEO, for ﬁrms with non-founder CEOs, and for ﬁrms in growing industries. Other forms of governance do not diminish the importance of internal governance, and the results are robust to endogeneity concerns.
Number of Pages in PDF File: 50
Date posted: March 18, 2010 ; Last revised: December 27, 2013
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