Board Structure and Monitoring: New Evidence from CEO Turnovers
University of New South Wales - UNSW Business School; Financial Research Network (FIRN)
Ronald W. Masulis
University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN)
May 22, 2015
Review of Financial Studies, Forthcoming
7th Annual Conference on Empirical Legal Studies Paper
ECGI - Finance Working Paper No. 351/2013
We use the 2003 NYSE and NASDAQ listing rules concerning board and committee independence as a quasi-natural experiment to examine the causal relations between board structure and CEO monitoring. Noncompliant firms forced to raise board independence or adopt a fully independent nominating committee significantly increase their forced CEO turnover sensitivity to performance relative to compliant firms. Nominating committee independence is important even when firms have an independent board, and the effect is stronger when the CEO was on the committee. We conclude that more independent boards and fully independent nominating committees lead to more rigorous CEO monitoring and discipline.
Number of Pages in PDF File: 71
Keywords: CCEO turnover; Nominating committee independence; Board Independence; Board monitoring; Independent directors; Sarbanes-Oxley Act; Endogeneity
JEL Classification: G34, G38, J63, J41
Date posted: March 14, 2012 ; Last revised: June 21, 2015
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