CEO-Board Dynamics

62 Pages Posted: 22 Mar 2017 Last revised: 15 Jun 2018

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: June 5, 2018

Abstract

We examine CEO-board dynamics using a new panel dataset that spans 1918 to 2011. Substantial director turnover occurs when a new CEO is hired but, despite this turnover, board structure is persistent. The changes in board structure that do occur are consistent with bargaining and dynamic agency theories: (i) In the year that a new CEO is hired, board independence increases significantly, consistent with increased monitoring of an unproven CEO; (ii) As the CEO’s tenure increases, board independence declines, the probability increases that the CEO becomes board chair, and compensation increases; (iii) The tenure-board-independence relation is weaker following poor performance, when there is more uncertainty about the CEO’s ability and after events that reduce CEO power, such as targeting by activist investors; (iv) CEOs with a history of success are less likely to be replaced conditional on poor firm performance. Finally, event studies document a positive market reaction when powerful CEOs die in office, in contrast to no market reaction to typical CEO deaths, consistent with powerful CEOs becoming entrenched.

Keywords: Governance, Chief Executive, Board of Directors, Dynamic Contracting, Bargaining, Compensation, Monitoring

JEL Classification: G3, J3, B26, M12

Suggested Citation

Graham, John R. and Kim, Hyunseob and Leary , Mark T., CEO-Board Dynamics (June 5, 2018). 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
United States

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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