Corporate Governance When Founders are Directors

Li, Feng; Srinivasan, Suraj

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Corporate Governance When Founders are Directors

Journal of Financial Economics, Vol. 102, No. 2, pp. 454-469, November 2011

51 Pages Posted: 8 Jan 2011 Last revised: 24 Nov 2011

See all articles by Feng Li

Feng Li

Shanghai Advanced Institute of Finance, Shanghai Jiaotong University

Suraj Srinivasan

Harvard Business School

There are 2 versions of this paper

Date Written: December 30, 2010

Abstract

We examine CEO compensation, CEO retention policies, and M&A decisions in firms where founders serve as a director with a non-founder CEO (founder-director firms). We find that founder-director firms offer a different mix of incentives to their CEOs than other firms. Pay for performance sensitivity for non-founder CEOs in founder-director firms is higher and the level of pay is lower than that of other CEOs. CEO turnover sensitivity to firm performance is also significantly higher in founder-director firms compared to non-founder firms. Overall, the evidence suggests that boards with founder-directors provide more high powered incentives in the form of pay and retention policies than the average U.S. board. Stock returns around M&A announcements and board attendance are also higher in founder-director firms compared to non-founder firms.

Keywords: CEO Compensation, CEO Turnover, Founder, Corporate Governance, Board of Directors

JEL Classification: G3, G34

Suggested Citation: Suggested Citation

Li, Feng and Srinivasan, Suraj, Corporate Governance When Founders are Directors (December 30, 2010). Journal of Financial Economics, Vol. 102, No. 2, pp. 454-469, November 2011, Available at SSRN: https://ssrn.com/abstract=1736626