The Interactive Influence of External and Internal Governance on Risk Taking and Outcomes: The Importance of CEO Career Concerns

54 Pages Posted: 5 Nov 2012 Last revised: 23 Aug 2013

See all articles by Jon A. Garfinkel

Jon A. Garfinkel

University of Iowa - Tippie College of Business

Jaewoo Kim

University of Oregon - Department of Accounting

Kyeong Hun Lee

Norwegian School of Economics (NHH) - Department of Finance

Date Written: August 2013

Abstract

We study the effects of multi-layered governance on firm risk by focusing on the interaction of two types of career concerns. Two Delaware court decisions, the validation of poison pill defenses (the Unitrin decision) implemented by staggered boards (the Wallace decision), reduced takeover-related career concerns. CEO age influences the response of Delaware firms to these shocks. Older CEOs in newly insulated firms reduce risk, while their younger counterparts increase risk. Ex-post, the differential behavior among young Delaware CEOs appears to be rewarded with abnormally positive stock performance and better future career outcomes. We conclude that there is important variation in the effects of governance on firm (CEO) behavior, driven by multiple facets of career concerns.

Keywords: governance, risk-taking, career concerns

JEL Classification: G32, G34

Suggested Citation

Garfinkel, Jon A. and Kim, Jaewoo and Lee, Kyeong Hun, The Interactive Influence of External and Internal Governance on Risk Taking and Outcomes: The Importance of CEO Career Concerns (August 2013). Available at SSRN: https://ssrn.com/abstract=2171005 or http://dx.doi.org/10.2139/ssrn.2171005

Jon A. Garfinkel (Contact Author)

University of Iowa - Tippie College of Business ( email )

108 PBB
Iowa City, IA 52242-1000
United States
319-335-0943 (Phone)
319-335-3690 (Fax)

HOME PAGE: http://www.biz.uiowa.edu/faculty/jgarfinkel

Jaewoo Kim

University of Oregon - Department of Accounting ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Kyeong Hun Lee

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
204
Abstract Views
1,206
rank
159,734
PlumX Metrics