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Bottom-Up Corporate Governance

Author

Listed:
  • Augustin Landier
  • Julien Sauvagnat
  • David Sraer
  • David Thesmar
Abstract
This article empirically relates the internal organization of a firm with decision making quality and corporate performance. We call "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 following large acquisitions. These results are unaffected when we control for traditional governance measures such as board independence or other well-studied shareholder friendly provisions. One interpretation is that "independently minded" top ranking executives act as a counter-power imposing strong discipline on their CEO, even though they are formally under his authority. Copyright 2013, Oxford University Press.

Suggested Citation

  • Augustin Landier & Julien Sauvagnat & David Sraer & David Thesmar, 2013. "Bottom-Up Corporate Governance," Review of Finance, European Finance Association, vol. 17(1), pages 161-201.
    • Handle: RePEc:oup:revfin:v:17:y:2013:i:1:p:161-201
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    File URL: http://hdl.handle.net/10.1093/rof/rfs020
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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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