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  • December 2011
  • Article
  • Journal of Corporate Finance

CEO and Board Chair Roles: To Split or Not to Split?

By: Aiyesha Dey, Ellen Engel and Xiaohui Liu
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Abstract

We examine the performance and compensation implications of firms' decisions to combine the roles of CEO and board chairman (duality). We document that firms that split the CEO and chairman positions due to investor pressure have significantly lower announcement returns and subsequent performance, and lower contributions of investments to shareholder wealth. Further, these performance outcomes are more negative for firms with higher predicted probabilities of duality based on a model of economic determinants of board leadership structure. We also find that pay-performance sensitivity in CEO compensation contracts are significantly lower following a split in the CEO and chairman positions, and significantly higher following a combination in these positions. Our evidence suggests that on average, board leadership choices by firms and market responses are consistent with efficiency arguments, and recent proposals for all firms to separate the CEO and chairman roles warrant more careful consideration.

Keywords

CEO Duality; Board Chairman; Firm Performance; Pay-performance Sensitivity; Corporate Governance; Governing and Advisory Boards; Leadership; Performance Efficiency

Citation

Dey, Aiyesha, Ellen Engel, and Xiaohui Liu. "CEO and Board Chair Roles: To Split or Not to Split?" Journal of Corporate Finance 17, no. 5 (December 2011): 1595–1618.
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About The Author

Aiyesha Dey

Accounting and Management
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  • Bear to Bull? An Analyst’s Journey with Netflix By: Aiyesha Dey and Joseph Pacelli
  • Ginkgo Bioworks vs. Scorpion Capital: The Debate Over Related-Party Revenues By: Jonas Heese, Aiyesha Dey and Suraj Srinivasan
  • Understanding The Value of DEI Programs: Perspectives from Corporate Leadership By: Aiyesha Dey, Kristina M. Rennekamp and Joseph Pacelli
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