Powerful CEOs and Corporate Governance

Journal of Empirical Legal Studies, Forthcoming

59 Pages Posted: 10 Jan 2018 Last revised: 29 Nov 2021

See all articles by Mark Humphery-Jenner

Mark Humphery-Jenner

University of New South Wales (UNSW); UNSW Business School; Financial Research Network (FIRN)

Emdad Islam

Monash University

Lubna Rahman

Monash University

Jo-Ann Suchard

Financial Research Network (FIRN); UNSW Business School

Date Written: September 16, 2019

Abstract

Excessive CEO power is often regarded as value-destroying. We use a quasi-exogenous regulatory shock to analyze whether improved governance helps to channel firms with powerful CEOs towards more value-enhancing corporate policies. We use the Sarbanes-Oxley Act and NYSE/NASDAQ listing rules and focus on firms that were required to improve governance. We find that post-regulation firms led by powerful CEOs increase innovation inputs (R&D expenditures) and produce more innovation outputs (patents) that are scientifically more important (citations) and economically more valuable (market value of patents). Investment quality also improves, manifesting in better takeover performance and improvements in firm performance and corporate value. Our results suggest that improved governance can mitigate value destruction in powerful CEO-managed firms. We take steps to mitigate econometric concerns and ensure our results are robust to various combinations of fixed effects and control variables.

Keywords: Powerful CEOs, Sarbanes-Oxley Act (SOX), Compliant firms, Non-Compliant Firms, R&D, Innovation, Empire Building, CAPX, PPE, Dividend, Corporate Governance

JEL Classification: G31, G34

Suggested Citation

Humphery-Jenner, Mark and Humphery-Jenner, Mark and Islam, Emdad and Rahman, Lubna and Suchard, Jo-Ann and Suchard, Jo-Ann, Powerful CEOs and Corporate Governance (September 16, 2019). Journal of Empirical Legal Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3090783 or http://dx.doi.org/10.2139/ssrn.3090783

Mark Humphery-Jenner (Contact Author)

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Emdad Islam

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Lubna Rahman

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Jo-Ann Suchard

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

UNSW Business School ( email )

high street
High St
sydney, NSW 2052
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
318
Abstract Views
2,408
Rank
180,936
PlumX Metrics