Board Structure and Monitoring: New Evidence from CEO Turnover

77 Pages Posted: 14 Mar 2012 Last revised: 5 Dec 2019

See all articles by Lixiong Guo

Lixiong Guo

University of Mississippi

Ronald W. Masulis

University of New South Wales, Sydney; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Date Written: May 22, 2015

Abstract

We use the 2003 NYSE and NASDAQ listing rules concerning board and committee independence as a quasi-natural experiment to examine the causal relations between board structure and CEO monitoring. Noncompliant firms forced to raise board independence or adopt a fully independent nominating committee significantly increase their forced CEO turnover sensitivity to performance relative to compliant firms. Nominating committee independence is important even when firms have an independent board, and the effect is stronger when the CEO was on the committee. We conclude that more independent boards and fully independent nominating committees lead to more rigorous CEO monitoring and discipline.

Keywords: CEO turnover; Nominating committee independence; Board Independence; Board monitoring; Independent directors; Sarbanes-Oxley Act; Endogeneity

JEL Classification: G34, G38, J63, J41

Suggested Citation

Guo, Lixiong and Masulis, Ronald W., Board Structure and Monitoring: New Evidence from CEO Turnover (May 22, 2015). Review of Financial Studies, Forthcoming, 7th Annual Conference on Empirical Legal Studies Paper, ECGI - Finance Working Paper No. 351/2013, Available at SSRN: https://ssrn.com/abstract=2021468 or http://dx.doi.org/10.2139/ssrn.2021468

Lixiong Guo (Contact Author)

University of Mississippi ( email )

Oxford, MS 38677
United States

Ronald W. Masulis

University of New South Wales, Sydney ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

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

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

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