A Cognitive Model of CEO Dismissal: Understanding the Influence of Board Perceptions, Attributions and Efficacy Beliefs

abstract    Extant literature that examines the role of boards in the CEO dismissal process has focused on the impact of board composition. However, it has rarely considered the influence of sense making and interpretation on CEO dismissal. This paper draws on the strategic change literature, which demonstrates a link between cognitions and action, to develop a three-stage framework in which we articulate how sense making (stage 1) and interpretation (stage 2) impact the decision to dismiss a CEO (stage 3). More specifically, the board's perception of performance, its attributions of performance and efficacy assessment of the CEO, and the board's composition impact the decision to dismiss the CEO. The resulting model illuminates the domain of board cognitions and board composition within CEO dismissal decisions and facilitates future empirical research.     

In Defense of Boards

It is often assumed that bad corporate performance means a bad CEO. The task of a board of directors is then simple: dismiss the executive. If it fails to do so, the board is said to be indolent. We take a kinder approach to observed board behavior and point to the problems even well-intended boards would encounter. They face the twin task of disciplining and screening executives. We analyze the nature of the retention contract a board uses to discipline and screen executives. Consistent with empirical observation, we find that executives may become overly active to show their credentials, and that the link between bad performance and dismissal is weak.     

Boards of Directors and the Adoption of a CEO Performance Evaluation Process: Agency — and Institutional — Theory Perspectives

Using both agency and institutional theories, we examined factors associated with the board's adoption of a formal process for evaluating the performance of the corporation's chief executive officer (CEO). Our sample was drawn from the hospital industry. Results show that an independent board chairperson, the level of market competition and the degree of managed care penetration were significant predictors of whether or not the board had adopted a formal CEO evaluation process. These findings imply that initiatives to improve governance effectiveness based on agency theory should take into account the institutional environment of corporate boards.     

Corporate Control Through Board Dismissals and Takeovers

This paper examines some policy issues related to the interaction between internal and external corporate control mechanisms—board dismissals and takeovers—by focusing on the information aggregation and other effects related to this interaction. We model the functioning of corporate control mechanisms as an example of a multilayered principal-agent relationship in which shareholders delegate the task of monitoring management quality to the board and rely on the external takeover market to provide additional disciplining of the manager as well as of the board. This gives rise to two effects: (1) a substitution effect, whereby the takeover market partially substitutes for board dismissal of the manager, leading to greater lenience toward the manager by a board acting in the shareholders' best interest, and (2) a kick-in-the-pants effect, whereby the board is stricter with the manager because it may be dismissed by a successful acquirer who views it as lax. The interaction of these two effects leads to various implications about the behavior of boards and potential acquirers. In particular, a well-functioning internal control mechanism (the board) does not obviate the need for external control (takeovers). Moreover, somewhat counterintuitively, there may be a greater incidence of takeovers when the internal control mechanism is working well than when it is not.     

董事会特征对会计信息披露质量的影响——来自我国上市公司的经验证据

检验了我国董事会制度改革对强制性和自愿性信息披露质量的影响。研究发现:独立董事比例、独立董事超过1/3、"二元"领导权结构、财务专业背景的独立董事比例、审计委员会的存在、以及公司规模和雇佣"四大"与会计信息披露质量成显著正相关;灰色董事和内部董事超过1/3、配股动机与会计信息披露质量成显著负相关;而董事会规模、董事会会议次数、CEO变更、董事持股比例和财务杠杠与会计信息披露质量不显著。此外,还发现独立董事超过1/3、"二元"领导权结构、财务专业背景的独立董事比例和审计委员会的存在是影响强制性和自愿性信息披露质量最为显著的因素。     

建设我国创业板市场研究

中小企业板的设立是分步建设我国创业板市场的第一步。我国将分三步走来推进创业板市场的设立。我国设立创业板是可行的并且意义重大。我们在建设创业板市场的过程中应该特别注意:制定宽严适度的市场准入制度,建立股份全流通的创业板市场;着力培育创业板市场的机构投资者;加强监管,防范风险等     

Dimensions of CEO–Board Relations

Interactions between CEOs and their boards of directors are a prominent focus of management and strategy research. Despite the extensive literature on CEO–board relations, to date there has been limited integration of theoretical perspectives and measurement schemes. Through an extensive analysis of published studies, we hope to facilitate future research on CEO–board relations. We begin with a comparison of key theoretical approaches. Next, we conduct a content analysis of 51 empirical articles. We find that prior studies have an unbalanced focus regarding both topics and theoretical perspectives, and that there is limited consistency in the choice of measures. Based on this review, we lay out a number of promising directions for future research. We also find that, while there has been progress in international research on CEO–board relations, there are still many unanswered questions regarding the generalizability of governance theories across different geographic settings.     

R&D investment as a signal in corporate takeovers

The purpose of this paper is to analyze the effects that takeover threats have on firms' preacquisition R&D intensity. Critics of takeovers usually argue that takeover threats may reduce target firms' R&D investments. However, I find that target firms may increase R&D investment in order to signal their compatibility with the acquiring firm. The identity of the acquired firm depends on the market size and target firms' efficiency and compatibility. Through R&D investments, target firms may affect this result, signaling potential outsiders the kind of competition they may face, and forcing them to accept lower takeover offers. Copyright © 2009 John Wiley & Sons, Ltd.     

The Moderating Effect of CEO Power on the Board Composition–Firm Performance Relationship*

abstract Prior studies of the relationship between the composition of boards of directors and firm performance offer equivocal results. Drawing on agency and power circulation theories, we attempt to reduce this equivocality by asserting that CEO power moderates the relationship. Specifically, an outside director dominated board is needed to check a powerful CEO, but monitoring by other executives provides sufficient constraints on CEOs with low power. We used event study methodology to test the effects of the interaction between board composition and CEO power on stock market reaction to 73 unexpected CEO deaths. We found support for our theorizing among two of three sources of CEO power. Thus, although regulatory trends increasingly support outside director dominated boards, our findings indicate that this may not always benefit shareholders and that CEO power should be considered when constructing boards.     

Pay Comparability Across and Within UK Boards: An Empirical Analysis of the Cash Pay Awards to CEOs and Other Board Members

Drawing on the literature on social comparison and equity theories, this paper analyses the determinants of, and the relationships between, the cash pay awards of CEOs and other board members for a sample of large UK companies over the period 1992–95. Our results suggest that external labour market and internal (i.e., within board) pay comparisons are important in explaining both CEO and other directors' pay awards. In the case of CEOs, however, there is evidence of an asymmetric adjustment to prior period pay anomalies, whereby the pay of the relatively underpaid executives displays significantly greater sensitivity to external market comparison pay levels. This asymmetric adjustment process results in a 'bidding-up' of average CEO pay relative to other board members over the four year period investigated.     

The effects of corporate antitakeover provisions on long-term investment: empirical evidence

This paper's empirical results indicate that the average effect of antitakeover provisions on subsequent long‒term investment is negative. The interpretation of these results depends on whether one thinks that there was too much, too little, or just the right amount of long‒term investment prior to the antitakeover provision adoption. We use agency theory to devise more refined empirical tests of the effects of antitakeover provision adoption by managers in firms with different incentive and monitoring structures. Governance variables (e.g. percentage of outsiders on corporate boards, and separate CEO/chairperson positions) have an insignificant impact on subsequent long‒term investment behavior. However, consistent with agency theory predictions, managers in firms with better economic incentives (higher insider ownership) tend to cut subsequent long‒term investment less than managers in firms with less incentive alignment. Furthermore, managers in firms with greater external monitoring (due to higher institutional ownership) also tend to cut subsequent long‒term investment less than managers in firms with less external monitoring. Thus, the decrease in subsequent long‒term investment is significantly less for firms where the managers have greater incentives to act in shareholders' interests. Finally, there are interesting effects of the control variables. First, high book equity/market equity firms cut total long‒term investment more. Second, firms that were takeover targets or rumored to be takeover targets cut long‒term investment more. These results suggest that inefficient firms cut long‒term investment more when an antitakeover provision is adopted. © 1997 John Wiley & Sons, Ltd.     

公司总经理集权程度与融资方式偏好研究

基于公司市场价值与资本结构不相干模型(MM理论),结合中国实际,考虑公司总经理在董事会和管理层中的身份及其叠加效应,引入了总经理权力指数,建立了公司总经理集权程度与融资方式选择之间的理论模型;运用中国A股上市公司数据,实证检验了总经理集权情况与融资方式选择之间的关系。理论研究与实证检验结果均表明,公司总经理集权程度越高,权力越大,则越倾向于采用股权方式融资。因此,有必要匹配公司权力策略,建立更为纯粹的委托代理关系,完善公司治理机制。     

CEO compensation and the seasoned equity offering decision

Empirical research on seasoned equity offerings indicates that the decision to make an SEO typically engenders a decline in firm value, as investors interpret this decision as a signal of poor financial health or that the stock is overpriced. Here, we add to the literature by analyzing the short‐term market reaction to SEO announcements and the chief executive officer's link to firm performance (i.e. the proportion of CEO equity‐based compensation). Results support the hypothesis that investors are more likely to view the announcement of an SEO as a last resort source of capital when the proportion of CEO equity‐based compensation is high. In such cases of high equity‐based compensation, our findings indicate that the SEO announcement provides an incremental signal of financial distress above that provided by financial statements. We also find this relationship (last resort signal) to be stronger when large information asymmetries exist between management and investors. Thus, managers should consider the ramifications of executive compensation structure when considering whether to make an SEO. Copyright © 2006 John Wiley & Sons, Ltd.     

Keeping Their Cards Close to Their Chests: How Non‐Delegating CEOs Avoid Forced Career Ends

It is a common belief that CEOs must delegate to be successful. We hesitate to support this generalization and investigate how the distribution of responsibility within top management teams (TMTs) can influence the likelihood of a CEO’s dismissal. Consistent with an agency theory perspective, our results indicate that CEOs may choose not to delegate their responsibilities to other executive TMT members, so as to benefit from an increased information asymmetry vis‐à‐vis the board of directors. Taking the resource‐based view as a complementary theoretical perspective, we find that non‐delegating CEOs benefit from their greater firm‐specific knowledge, which the board of directors considers as a valuable resource that should be retained. Our work also demonstrates that a more intense CEO–TMT interaction weakens the relation between non‐delegation and the likelihood of CEO dismissal. In sum, our research shows that the CEO’s delegation decision does not necessarily lead to a competence distribution that is in the firm's best interest; rather, it reflects a complex interplay between the potentially opportunistic career interests of the CEO, the involvement of other TMT members and the board of directors. © 2015 Wiley Periodicals, Inc.     

How CEO narcissism affects earnings management behaviors

This study examined whether chief executive officers’ (CEOs) with narcissistic tendencies are more likely to execute earnings management behavior because of pressure to fulfill earnings thresholds. The results revealed that a CEO who exhibits high narcissism is more likely to be involved in earnings management to compensate for her/his performance. Our findings suggest that CEO narcissism directly influences financial decisions. Considering the earnings thresholds, firms with a more narcissistic CEO experience a regulatory effect on real earnings management behavior. Studies have indicated that CEOs manipulate earnings to satisfy three primary earnings thresholds: prior year’s reported earnings, zero earnings, and analysts’ forecasts. Our empirical results provide further evidence that CEOs engage in earnings management to fulfill positive earnings thresholds and analysts’ forecasts. We infer that CEOs use the abnormal production cost method as an underlying mechanism to increase reported earnings. Our findings help clarify the relationship between CEO personality traits and earnings manipulation to assist investors with decision-making.     

康师傅公司是否进入方便米饭市场

案例描述了康师傅公司董事长兼执行总裁魏应州对公司是否进入方便米饭市场的决策过程。来自公司两位高层对此也争论不休,营销副总裁藤先生建议公司新年度应大幅度增加有关方便米饭市场调查与研究预算,开展新产品上市前期相关准备工作;技术副总裁钱先生提出截然相反的意见,认为从技术和市场角度,方便米饭是一个不成熟、不确定的市场,公司应采取观望的态度。魏老板怕错失方便米饭市场的先机,先后两次亲自召开会议,但仍感进退两难,困扰他的最重要的三个问题是：（1）方便米饭市场有增长的机会吗？（2）前期市场调研需要花费不少的费用,值得投入吗？（3）康师傅何时进入该市场呢？总而言之,魏老板下一步该怎么做呢？     

Boards of Directors and Shark Repellents:Assessing the Value of an Agency Theory Perspective

Because shark repellents decrease the vulnerability of firms (and their incumbent managers) to the market for corporate control, the decision to adopt these devices represents an excellent test of agency theory. In this empirical study, we examined the relationships between the adoption of shark repellents and several mechanisms that, according to agency theory, should align the interests of corporate board members and shareholders and/or make directors more effective monitors of management behaviour. Of the variables included, only board stock ownership (especially by employee directors) was linked to a reduced propensity to adopt shark repellents in the predicted manner. Two variables not immediately as- sociated with agency theory — the proportion of inside directors appointed by the incumbent chief executive officer (CEO) and a lower ratio of CEO compensation to the compensation of other top executives — were linked to higher rates of shark repellent adoption. Given that agency theory explains relatively little of the variance in shark repellent adoption, we advocate serious consideration of other theoretical formulations for corporate governance, including two approaches — stewardship theory and agent morality — that take the moral ('other regarding') obligations of directors seriously.     

Board Antecedents of CEO Duality and the Moderating Role of Country‐level Managerial Discretion: A Meta‐analytic Investigation

CEO duality reduces boards’ monitoring capacity. But governance substitution theory holds that boards of directors who can effectively monitor their CEOs are more likely to adopt the CEO duality governance structure. By examining relationships between board characteristics underlying their monitoring capacity and CEO duality, we bring evidence to bear on governance substitution theory. Further, by applying a managerial discretion theory lens to CEO duality, we extend governance substitution theory to the cross‐country context where institutional features vary in their constraints on managerial discretion. Meta‐analytic results from a dataset of 297 studies across 32 countries/regions provided support for the majority of our predictions. As predicted, board independence and certain types of board human capital were positively related to CEO duality. Unexpectedly, board ownership was negatively related to CEO duality. Additionally, country‐level managerial discretion significantly moderated the board independence‐ and human capital‐duality relationships (but not the board‐ownership‐duality relationship) as predicted.     

Takeover threats,antitakeover amendments and stock price reaction

We examine the influence of takeover threats on the stock price of firms proposing antitakeover amendments. Stock prices of the majority of firms, which are not takeover targets during the four years surrounding the amendments, are unaffected, while prices of firms that become takeover targets within two years increase significantly. We document weak evidence of wealth losses only for a sample of prior targets. Our findings suggest that shareholders of the average firm are not harmed by antitakeover amendments because they provide either a better bargaining position or an information signal to the market.     

Directors' Pay and Turnover: An Application to a Sample of Large UK Firms

This paper examines the operation of the UK managerial labour market. We test the twin agency predictions that directors' pay is positively related to corporate performance and CEO turnover is negatively associated with firm profitability. We find that (i) the panel data econometric evidence reveals a significant and positive correlation between directors' pay, company performance and size, (ii) the CEO turnover model predicts a negative, and significant, association with pre-dated shareholder returns: the data is consistent with the view that CEOs are disciplined by the threat of dismissal, (iii) boardroom governance factors (e.g. proportion of non-executives and board size) are only of some importance in the CEO succession process.