How Do Independent Directors View Powerful CEOs? Evidence from a Quasi-Natural Experiment

16 Pages Posted: 22 Dec 2015

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Seksak Jumreonwong

Thammasat University

Napatsorn Jiraporn

State University of New York at New Paltz

Simran Singh

affiliation not provided to SSRN

Date Written: December 21, 2015

Abstract

Prior research shows that powerful CEOs can exacerbate the agency conflict, resulting in adverse corporate outcomes. Exploiting an exogenous shock introduced by the passage of the Sarbanes-Oxley Act, we explore whether board independence mitigates CEO power. Based on difference-in-difference estimation, our evidence shows that independent directors view powerful CEOs unfavorably. Board independence diminishes CEO power by more than a quarter. Based on a quasi-natural experiment, our research design is less vulnerable to the omitted-variable bias and reverse causality and therefore suggests that the effect of board independence on CEO power is likely causal.

Keywords: independent directors, independent boards, board independence, CEO power, powerful CEOs, Sarbanes-Oxley Act

JEL Classification: G30, G34

Suggested Citation

Jiraporn, Pornsit and Jumreonwong, Seksak and Jiraporn, Napatsorn and Singh, Simran, How Do Independent Directors View Powerful CEOs? Evidence from a Quasi-Natural Experiment (December 21, 2015). Available at SSRN: https://ssrn.com/abstract=2706344 or http://dx.doi.org/10.2139/ssrn.2706344

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Seksak Jumreonwong

Thammasat University ( email )

Bangkok, 10200
Thailand

Napatsorn Jiraporn

State University of New York at New Paltz ( email )

1 Hawk Drive
600 Hawk Drive
New Paltz, NY 12561-2443
United States

Simran Singh

affiliation not provided to SSRN

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