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Why Do CEOs Reciprocally Sit On Each Other's Boards?


Eliezer M. Fich


Drexel University - Department of Finance

Lawrence J. White


New York University (NYU) - Leonard N. Stern School of Business; Leonard N. Stern School of Business - Department of Economics


AFA 2001 New Orleans; NYU Ctr for Law and Business Research Paper No 01-002

Abstract:     
The reciprocal interlocking of chief executive officers (CEOs) is a non-trivial phenomenon of the composition of boards of directors and of corporate governance: among large companies in 1991, about one company in seven was part of a relationship whereby the CEO of one company sat on a second company's board and the second company's CEO sat on the first company's board. We are aware of no previous efforts to explain these reciprocal relationships. We hypothesize that reciprocal CEO interlocks are (a) more likely when a board has more outside directorships, (b) less likely when a CEO has more of his total annual compensation paid in the form of stock options, (c) less likely when a company's board is more active and holds more meetings, (d) less likely when a CEO has a larger ownership share of his company, and (e) more likely when there are more CEOs from other companies as outside directors on a CEO's board. Using a sizable sample of large companies in 1991, we employ simple probit and step probit models to test these hypotheses, with the use of control variables that encompass other company, board, and CEO characteristics. These multivariate analyses support our first three conjectures but do not support the remaining two.

Since there is considerable academic and policy debate concerning board composition and the effectiveness of interlocking directorships in general, investigations focusing on reciprocal CEO interlocks, which link the highest ranked executives of two different firms, represent a significant contribution to the knowledge base in this field.

Number of Pages in PDF File: 40

Keywords: Interlocking directorates, CEOs, Board of directors, Corporate governance; Stock options

JEL Classification: G34, J33, K22

working papers series


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Date posted: December 15, 2000  

Suggested Citation

Fich, Eliezer M. and White, Lawrence J., Why Do CEOs Reciprocally Sit On Each Other's Boards?. Journal of Corporate Finance, Vol. 11, pp. 175-195, 2005. Available at SSRN: http://ssrn.com/abstract=249975 or http://dx.doi.org/10.2139/ssrn.249975

Contact Information

Eliezer M. Fich (Contact Author)
Drexel University - Department of Finance ( email )
LeBow College of Business
101 North 33rd Street - Suite 104A
Philadelphia, PA 19104
(215) 895-2304 (Phone)
Lawrence J. White
New York University (NYU) - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States
Leonard N. Stern School of Business - Department of Economics ( email )
269 Mercer Street
New York, NY 10003
United States
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