Powerful Subordinates: Internal Governance and Stock Market Liquidity
Central Michigan University
Christine X. Jiang
University of Memphis - Fogelman College of Business and Economics
Mohamed A. Mekhaimer
Clarkson University; Mansoura University - Faculty of Commerce
Acharya, Myers, and Rajan (2011) develop a model of internal governance where subordinate managers may effectively monitor the CEO to maintain the future of the firm. Using a measure of internal governance based on the difference in horizons between a CEO and his subordinates, we show that firms with better internal governance are more liquid. We also show that internal governance is more effective in enhancing liquidity for firms with CEOs close to retirement, with experienced subordinate managers, and firms that require higher firm-specific skills. Our results are robust to inclusion of conventional governance measures, alternative model specifications, and different measures of internal monitoring and liquidity.
Number of Pages in PDF File: 54
Keywords: Internal monitoring, Corporate governance, Subordinate managers, Liquidity
JEL Classification: G30, G34
Date posted: September 19, 2011 ; Last revised: September 30, 2013
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