Chair-CEO Trust and Firm Performance

51 Pages Posted: 15 Jan 2019

See all articles by Jiayi Zheng

Jiayi Zheng

University of Queensland - Business School

Yushu Zhu

University of Queensland - Business School

Date Written: January 15, 2019

Abstract

This study assesses whether individual-level trust between the board chair and the CEO affects firm performance. We find that chair-CEO trust is positively associated with firm performance. Additional tests suggest the relationship between trust and firm performance is causal, with more pronounced effects observed for firms with greater advisory needs (more diversified firms) and boards that are able to deliver high-quality advice (firms with higher ratios of busy directors). This trust promotes a strong board process that consequently leads to value-adding innovation and merger and acquisition decisions. Further, this trust relationship can moderate the negative effect on firm performance during CEO turnovers.

Keywords: social trust, advisory role, firm performance, merger and acquisition, corporate innovation.

JEL Classification: G32, G34, G41

Suggested Citation

Zheng, Jiayi and Zhu, Yushu, Chair-CEO Trust and Firm Performance (January 15, 2019). 2019 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=3316059 or http://dx.doi.org/10.2139/ssrn.3316059

Jiayi Zheng (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Yushu Zhu

University of Queensland - Business School ( email )

Blair Drive
Brisbane
Australia

HOME PAGE: http://https://www.business.uq.edu.au/staff/yushu-elizabeth-zhu

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