Figureheads or Potentates? CEO Power and Board Oversight in the Context of Sarbanes Oxley

25 Pages Posted: 19 May 2020

See all articles by Katalin Takacs Haynes

Katalin Takacs Haynes

University of Delaware - Business Administration

alessandro zattoni

affiliation not provided to SSRN

Brian K. Boyd

City University of Hong Kong (CityU)

Alessandro Minichilli

Bocconi University - Department of Management and Technology

Date Written: November 2019

Abstract

Research question/issue. We depart from studies that separately explore chief executive officers' (CEOs') and boards' effects on firm performance. Instead, we examine the direct relationship between CEO power and firm performance, and how board monitoring, and most importantly, a change in the regulatory environment alter the relationship. As such, our study jointly examines the role of both internal and external corporate governance mechanisms on the relationship between CEO power and firm performance. Research findings/insights. Our findings indicate that the negative main effect of a powerful CEO on firm performance is reduced by board monitoring and that the Sarbanes Oxley (SOX) legislation amplifies board monitoring and reduces the negative effects of CEO power. Theoretical/academic implications. Our study shows that agency relationships are grounded in social and institutional contexts. More precisely, our results suggest that CEO power is a function of CEO's relationship with the board, as CEO power and board monitoring interactions affect firm performance. Furthermore, they indicate that the CEO‐board relationship is constructed within the legal institutional context, as the shock of SOX alters the effects that different combinations of CEO power and board monitoring have on firm performance. Practitioner/policy implications. Our results highlight to investors and directors that corporate boards should be designed in relation to the power of CEOs. In addition, they provide valuable guidance for policy‐makers, suggesting that tight regulations may represent effective deterrents for some CEOs' misbehaviors and favor the alignment of interests with those of company owners.

Keywords: Corporate Governance, CEO Power, Board Oversight, Sarbanes‐Oxley, Internal and External Governance Mechanisms

Suggested Citation

Haynes, Katalin Takacs and zattoni, alessandro and Boyd, Brian K. and Minichilli, Alessandro, Figureheads or Potentates? CEO Power and Board Oversight in the Context of Sarbanes Oxley (November 2019). Corporate Governance: An International Review, Vol. 27, Issue 6, pp. 402-426, 2019, Available at SSRN: https://ssrn.com/abstract=3593715 or http://dx.doi.org/10.1111/corg.12293

Katalin Takacs Haynes (Contact Author)

University of Delaware - Business Administration ( email )

214 MBNA America Hall
Orchard Road & Amstel Avenue
Newark, DE 19716-2710
United States

Alessandro Zattoni

affiliation not provided to SSRN

Brian K. Boyd

City University of Hong Kong (CityU) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Alessandro Minichilli

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

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