How Do Independent Directors View Generalist vs. Specialist CEOs? Evidence from an Exogenous Regulatory Shock

Abstract

Exploiting the passage of the Sarbanes-Oxley Act as a quasi-natural experiment, we explore how independent directors view generalist vs. specialist CEOs. Generalist CEOs possess the general managerial skills that can be applied across firms and industries. Our difference-in-difference estimates show that independent directors view generalist CEOs unfavorably. Firms forced to raise board independence experience a lower increase in CEO general ability than those not required to change board composition. Additional analysis confirms the results, including fixed- and random-effects regressions, propensity score matching, instrumental-variable analysis, and Oster’s (2019) technique for testing coefficient stability.

Keywords: generalist CEOs, specialist CEOs, independent directors, board independence, corporate governance, Sarbanes-Oxley

JEL Classification: G28, G32, G34