An Empirical Investigation of Internal Governance

50 Pages Posted: 18 Mar 2010 Last revised: 27 Dec 2013

Rajesh K. Aggarwal

Northeastern University

Huijing Fu

Texas Christian University

Yihui Pan

University of Utah - Department of Finance

Date Written: December 26, 2013

Abstract

Acharya, Myers, and Rajan (2011) theorize that CEO rent extraction is constrained by subordinate managers. This internal governance works best when the relative contributions of CEOs and managers to output are balanced. Consistent with the theory, we find a hump-shaped relation between relative contributions and corporate investment, and between relative contributions and firm performance. These hump-shaped relations are stronger for firms with older CEOs, for firms more likely to promote insiders to CEO, for firms with non-founder CEOs, and for firms in growing industries. Other forms of governance do not diminish the importance of internal governance, and the results are robust to endogeneity concerns.

Suggested Citation

Aggarwal, Rajesh K. and Fu, Huijing and Pan, Yihui, An Empirical Investigation of Internal Governance (December 26, 2013). AFA 2011 Denver Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1571740 or http://dx.doi.org/10.2139/ssrn.1571740

Rajesh K. Aggarwal (Contact Author)

Northeastern University ( email )

413 Hayden Hall
360 Huntington Avenue
Boston, MA 02115
United States

Huijing Fu

Texas Christian University ( email )

Fort Worth, TX 76129
United States
817-257-7148 (Phone)
817-257-7227 (Fax)

Yihui Pan

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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