CEO Duality: Newspapers and Stock Market Reactions

Abstract

This study aims to investigate the unsettled issue of the relationship between CEO duality and a firm’s value through the perspective of investors’ reaction to news which mention apical directors with a single role and Board Chair CEOs. With a unique and hand-collected database of 60,805 newspaper articles, text-analysis, event-study and regression analysis methodologies were applied to capture news sentiment and study the direction and the magnitude of the stock market reaction. Results reveal that news mentioning Board Chair CEOs are negatively processed by investors, revealing a negative perception by investors about CEO duality. The study provides empirical support for the agency theory, in contrast to the stewardship theory, in the interpretation of CEO duality. It also proposes the methodology of systematically quantifying language to explore corporate governance issues and their link with financial markets.

Impact of CEO attributes on corporate reputation, financial performance, and corporate sustainable growth: evidence from India

“…playing a dual role in conjunction decrease stakeholder perception of firm reputation. This result supports the perspective of agency theory and research by Caiffa et al (2021), who noted stakeholders' do not appreciate the concentration of power in a single individual who serves the same company with more than one role. Conceivably, stakeholders' or investors do hold the notion that CEO duality can weaken the protection sought by shareholders and may incentivize CEO entrenchment by diminishing board monitoring effectiveness.…”

CEO statements on racial inequity – (how) do they matter to shareholders?

“…To assess whether there is a stock market reaction after news of the actions undertaken by firms is published – and as a second step, the direction and the magnitude of this reaction – the event study methodology is applied. Underlying the event study methodology is the assumption that investors use the new information contained in a corporate announcement to instantly update their opinions, which should then reflect positively or negatively in the company’s stock price (Caiffa et al , 2021; Campbell, 1997). In our case, events are announcements made by companies about their actions in support of racial justice causes.…”

Fifty shades of CEO duality: CEO personal risk preference, duality and corporate risk-taking

“…Duality can lead to more effective decision-making (Dey et al, 2011;Li et al, 2019). Dual CEOs are more visible and receive more public scrutiny: mass media scrutiny has stronger impact on stock prices for firms led by dual CEOs, and public opinions about them are also more sensitive to negative corporate news (Caiffa et al, 2021;Kang and Kim, 2016). The heightened scrutiny increases CEOs' concerns about their reputationsthe key to their future careers [2].…”

“…Duality increases CEOs' visibility. For example, public opinion about dual CEOs is also more sensitive to firms' negative news (Caiffa et al, 2021;Kang and Kim, 2016). The increased scrutiny will raise CEOs' concern about their reputation as critical to their future career prospects.…”

“…, 2019). Dual CEOs are more visible and receive more public scrutiny: mass media scrutiny has stronger impact on stock prices for firms led by dual CEOs, and public opinions about them are also more sensitive to negative corporate news (Caiffa et al. , 2021; Kang and Kim, 2016).…”