Ceo Duality and Firm Performance: What's the Fuss?

Abstract

Rising shareholder activism following poor corporate performance and a subsequent drop in shareholder value at many major U.S. corporations had rekindled interest in duality and corporate governance. Despite limited empirical evidence, duality (chairman of the board and CEO are the same individual) has been blamed, in many cases, for the poor performance, and failure of firms to adapt to a changing environment. In examining the relationship between duality and firm performance, this study considers the announcement effects of changes in duality status, accounting measures of operating performance for firms that have changed their duality structure, and long‐term measures of performance for firms that have had a consistent history of a duality structure. Our results suggest that: (1) the market is indifferent to changes in a firm's duality status; (2) there is little evidence of operating performance changes around changes in duality status; and (3) there is only weak evidence that duality status affects long‐term performance, after controlling for other factors that might impact that performance.

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“…Boyd (1995) found that combining the roles was associated with higher profitability. In contrast Rechner and Dalton (1991) concluded that combining the roles reduced profitability whereas Baliga et al (1996) and Dalton et al (1998) found that duality had no effect on performance. Thus, although duality may increase the opportunities for the potential appropriation of residual control rights, it does not necessarily mean that it will occur.…”

Non-Management Director Options, Board Characteristics, and Future Firm Investments and Performance

“…The relation between CEO duality and director stock option grants is not clear. Fama and Jensen (1983), Lipton and Lorsch (1992) and Jensen (1993) Baliga et al (1996) find no evidence that separating or combining the two positions affects firm performance in any discernible way.…”

“…Board characteristics and board ownership factors control for competing corporate governance mechanisms. Our choice of which board variables to include in each regression is influenced by Yermack (1996), Klein (1998), Vafeas (1999a), Core et al (1999) and Moyer et al (1996), who examine the relation between investment or performance measures and board attributes.…”

Board Composition of Turkish Listed Companies: Is There Any Difference Between Industries

“…The research on the effects of CEO duality on organizational performance also yielded to inconsistent results. The findings of most of the studies indicate insignificant effects (Rechner and Dalton, 1989;Dalton, 1992, 1993;Baliga et al, 1996). In some studies, it was found out that CEO duality have a positive effect on organizational performance (Daily and Dalton, 1994), whereas some other studies indicate negative effect (Rechner and Dalton, 1991;Coles, McWilliams, and Sen, 2001).…”