Bottom-Up Corporate Governance

52 Pages Posted: 23 May 2006

See all articles by Augustin Landier

Augustin Landier

Toulouse School of Economics

David Alexandre Sraer

University of California, Berkeley; Princeton University

David Thesmar

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA)

Multiple version iconThere are 3 versions of this paper

Date Written: February 2006

Abstract

In many instances, 'independently-minded' top-ranking executives can impose strong discipline on their CEO, even though they are formally under his authority. This paper argues that the use of such a disciplining mechanism is a key feature of good corporate governance. We provide robust empirical evidence consistent with the fact that firms with high internal governance are more efficiently run. We empirically label as 'independent from the CEO' a top executive who joined the firm before the current CEO was appointed. In a very robust way, firms with a smaller fraction of independent executives exhibit (1) a lower level of profitability and (2) lower shareholder returns after large acquisitions. These results are unaffected when we control for traditional governance measures such as board independence or other well-studied shareholder-friendly provisions.

Keywords: Corporate governance, corporate performance, acquisition, executives

JEL Classification: D23, G14, G34

Suggested Citation

Landier, Augustin and Sraer, David Alexandre and Thesmar, David, Bottom-Up Corporate Governance (February 2006). CEPR Discussion Paper No. 5500. Available at SSRN: https://ssrn.com/abstract=903923

Augustin Landier (Contact Author)

Toulouse School of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

David Alexandre Sraer

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

David Thesmar

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
16172259767 (Phone)

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