CEO Duality and Firm Performance: Evidence from an Exogenous Shock to the Competitive Environment

60 Pages Posted: 26 Nov 2012 Last revised: 9 Jan 2016

Tina Yang

Villanova University - School of Business

Shan Zhao

Grenoble Ecole de Management

Date Written: May 1, 2014

Abstract

Regulators and governance activists are pressuring firms to abolish CEO duality (the Chief Executive Officer is also the Chairman of the Board). However, the literature provides mixed evidence on the relation between CEO duality and firm performance. Using the exogenous shock of the 1989 Canada-United States Free Trade Agreement, we find that duality firms outperform non-duality firms by 3-4% when their competitive environments change. Further, the performance difference is larger for firms with higher information costs and better corporate governance. Our results underscore the benefits of CEO duality in saving information costs and making speedy decisions.

Keywords: CEO duality, firm performance, corporate governance, endogeneity, competitive environments

JEL Classification: G34, G38, K22

Suggested Citation

Yang, Tina and Zhao, Shan, CEO Duality and Firm Performance: Evidence from an Exogenous Shock to the Competitive Environment (May 1, 2014). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2177403 or http://dx.doi.org/10.2139/ssrn.2177403

Tina Yang (Contact Author)

Villanova University - School of Business ( email )

800 Lancaster Avenue
Villanova, PA 19085-1678
United States
610-519-5460 (Phone)

Shan Zhao

Grenoble Ecole de Management ( email )

Grenoble, 38003
France

HOME PAGE: http://sites.google.com/site/zhaoshan75/

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