Board Structure and Monitoring: New Evidence from CEO Turnovers

71 Pages Posted: 14 Mar 2012 Last revised: 16 Feb 2016

Lixiong Guo

University of New South Wales - UNSW Business School; Financial Research Network (FIRN)

Ronald W. Masulis

University of New South Wales - Australian School of Business; 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: CCEO 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 Turnovers (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 New South Wales - UNSW Business School ( email )

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

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

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

Ronald W. Masulis

University of New South Wales - Australian School of Business ( email )

Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 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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