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CEO Power and Board Dynamics

58 Pages Posted: 22 Mar 2017 Last revised: 28 Mar 2017

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Hyunseob Kim

Cornell University - Samuel Curtis Johnson Graduate School of Management

Mark T. Leary

Washington University in St. Louis - Olin Business School; National Bureau of Economic Research (NBER)

Date Written: March 20, 2017

Abstract

We examine bargaining dynamics between the CEO and the board of directors using a newly constructed panel of data from 1918 to 2011. In the year that a new CEO is hired, board independence increases significantly, consistent with new CEOs having less bargaining power initially. We find that as the CEO’s tenure (and thus power) increases, an additional year on the job is associated with a significant decline in board independence, an increase in the probability that the CEO holds the board chairman title, and an increase in compensation. The tenure-board independence relation is weaker when there is more uncertainty about the CEO’s ability and after events that reduce CEO power, such as targeting by activist investors. We also find that powerful CEOs are less likely to be replaced conditional on poor firm performance and that board structure is highly persistent. Finally, event studies document a positive market reaction when powerful CEO’s die in office, in contrast to no market reaction to typical CEO deaths, consistent with powerful CEOs becoming entrenched.

Keywords: CEOs, boards, bargaining power, dynamics

JEL Classification: G34,

Suggested Citation

Graham, John R. and Kim, Hyunseob and Leary , Mark T., CEO Power and Board Dynamics (March 20, 2017). Available at SSRN: https://ssrn.com/abstract=2938120 or http://dx.doi.org/10.2139/ssrn.2938120

John Robert Graham (Contact Author)

Duke University ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Hyunseob Kim

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Mark T. Leary

Washington University in St. Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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