Number Two Executives: Bottom-up Monitoring

40 Pages Posted: 9 Mar 2014 Last revised: 7 May 2017

See all articles by Zhichuan Frank Li

Zhichuan Frank Li

University of Western Ontario - Ivey School of Business

Date Written: May 4, 2017

Abstract

This paper empirically examines whether the number two executive in a firm could possibly mitigate the agency problems by monitoring the CEO from bottom up. While the CEO has always been the focus, little work has been done on the number two executive. This study promotes a comprehensive understanding of these top executives and their roles in the bottom-up monitoring mechanism. The results suggest that (1) the bottom-up monitoring provided by number two executives improves firm value; (2) the effect is greater for firms with weaker corporate governance or CEO incentive alignment; (3) the bottom-up monitoring is more important in the post-SOX environment; (4) such monitoring reduces the CEO’s ability to pursue the “quiet life” but has no effect on “empire building.”

Keywords: Bottom-up monitoring, Corporate governance, Agency problem, Empire building, Quiet life, Sarbanes-Oxley Act

JEL Classification: G34, G32, D23, J33

Suggested Citation

Li, Zhichuan Frank, Number Two Executives: Bottom-up Monitoring (May 4, 2017). Available at SSRN: https://ssrn.com/abstract=2406191 or http://dx.doi.org/10.2139/ssrn.2406191

Zhichuan Frank Li (Contact Author)

University of Western Ontario - Ivey School of Business ( email )

1151 Richmond Street North
London Ontario, Ontario N6A 3K7
Canada

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