Monitoring Managers: Does it Matter?

63 Pages Posted: 14 Dec 2011 Last revised: 7 Jan 2015

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

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

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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-equity-backed 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; NYU Working Paper No. FIN-11-017. Available at SSRN: https://ssrn.com/abstract=1972118

Francesca Cornelli (Contact Author)

London Business School ( email )

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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

Stockholm School of Economics ( email )

111 60 Stockholm
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

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

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