64 Pages Posted: 1 Jul 2019 Last revised: 20 Jan 2022
Date Written: June 2019
We examine CEO-board dynamics using a new panel dataset that spans 1920 to 2011. The long sample allows us to perform within-firm and within-CEO tests over a long horizon, many for the first time in the governance literature. Consistent with theories of bargaining or dynamic contracting, we find board independence increases at CEO turnover and falls with CEO tenure, with the decline stronger following superior performance. CEOs are also more likely to be appointed board chair as tenure increases, and we find evidence consistent with a substitution between board independence and chair duality. Other results suggest that these classes of models fail to capture important elements of board dynamics. First, the magnitude of the CEO tenure effect is economically small, much smaller for example than the strong persistence in board structure that we document. Second, when external CEOs are hired, board independence falls and subsequently increases. Third, event studies document a positive market reaction when powerful CEOs die in office, consistent with powerful CEOs becoming entrenched.
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