The Value of the Chief Legal Officer to the Firm
Robert C. Bird
University of Connecticut - School of Business
University of Connecticut School of Business
John D. Knopf
University of Connecticut - Department of Finance
January 8, 2014
The CLO creates firm value when financial mismanagement occurs. Firm BHARs increase by 1% when the CLO is one of the top five highest compensated executives; this increases to nearly 4% for firms that have or will become targets of shareholder class-action lawsuits. We consider two possible channels for this added value: legal expertise and internal monitoring. We distinguish between the two by examining the effect of governance, opacity, turnover, and valuation on CLO standing. We conclude that it is the monitoring function rather than her legal expertise that is the source of the CLO’s greatest contribution to the firm.
Number of Pages in PDF File: 51
Keywords: Executive compensation, securities class action, corporate governance, general counsel
JEL Classification: G30, K20, K22, M12
Date posted: January 17, 2014 ; Last revised: May 29, 2014
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