Corporate Governance and Powerful CEOs
58 Pages Posted: 10 Jan 2018 Last revised: 23 Sep 2019
Date Written: September 16, 2019
We examine whether improved governance helps to channel firms with powerful CEOs towards more value enhancing investment policies. We use the Sarbanes-Oxley Act and NYSE/NASDAQ listing rules as a quasi-exogenous shock 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 and economically more valuable. Investment quality also improves, manifesting in better takeover performance. Our results suggest that improved governance can mitigate value destruction in powerful CEO managed firms.
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: Suggested Citation