40 Pages Posted: 7 Nov 2016
Date Written: November 6, 2016
This study examines the impact of CEO duality on investment allocation efficiency and firm value. When a CEO is also the chair of the board, the firm makes relatively more investments in business segments with low growth opportunities than do firms in which these roles are held by different individuals. Such capital (mis)allocations violate the internal capital market efficiency tenet, exhibiting negative overall value consequences. However, the adverse impact of CEO duality on investment efficiency and value prevails only in firms with low CEO compensation incentives. Overall, the findings of this study indicate that the capital allocation process is an important channel through which CEO duality lowers firm value, and compensation incentives are an important internal device to mitigate this negative value effect.
Keywords: CEO Duality; Agency Costs; Capital Allocation; Investment Efficiency
JEL Classification: G38; G34; M48
Suggested Citation: Suggested Citation
Aktas, Nihat and Andreou, Panayiotis C. and Karasamani, Isabella and Philip, Dennis, CEO Duality, Agency Costs, and Internal Capital Allocations (November 6, 2016). Available at SSRN: https://ssrn.com/abstract=2865169 or http://dx.doi.org/10.2139/ssrn.2865169