Monitoring Managers: Does it Matter?

69 Pages Posted: 18 Nov 2009 Last revised: 23 Oct 2018

See all articles by Francesca Cornelli

Francesca Cornelli

London Business School; Centre for Economic Policy Research (CEPR)

Zbigniew W. Kominek

European Bank for Reconstruction and Development (EBRD)

Alexander Ljungqvist

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 5 versions of this paper

Date Written: February 20, 2012

Abstract

We study how well-incentivized boards monitor CEOs and whether such monitoring improves performance. Using unique, detailed data on boards’ information sets and decisions for a large sample of private-equitybacked firms, we find that gathering information helps boards learn about CEO ability. ‘Soft’ information plays a much larger role than hard data, such as the performance metrics that prior literature focuses on, and helps avoid firing the CEO for bad luck or in response to adverse external shocks. We show that governance reforms increase the effectiveness of board monitoring and establish a causal link between forced CEO turnover and performance improvements.

Keywords: Corporate governance, large shareholders, boards of directors, active monitoring, CEO turnover, legal reforms, transition economies, private equity

JEL Classification: G34, G24, G32, K22, O16, P21

Suggested Citation

Cornelli, Francesca and Kominek, Zbigniew W. and Ljungqvist, Alexander, Monitoring Managers: Does it Matter? (February 20, 2012). Journal of Finance, Forthcoming; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 271/2010. Available at SSRN: https://ssrn.com/abstract=1507762 or http://dx.doi.org/10.2139/ssrn.1507762

Francesca Cornelli

London Business School ( email )

Sussex Place
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+44 20 7262 5050 x3225 (Phone)
+44 20 7724 3317 (Fax)

HOME PAGE: http://www.lbs.ac.uk/faculty/fcornelli/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Zbigniew W. Kominek

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2EH
United Kingdom

Alexander Ljungqvist (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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New York, NY 10012-1126
United States
212-998-0304 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://pages.stern.nyu.edu/~aljungqv

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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