The impact of corporate governance mechanisms and characteristics of CEOs and directors on corporate outcomes

Huang, Siyu (2022). The impact of corporate governance mechanisms and characteristics of CEOs and directors on corporate outcomes. University of Birmingham. Ph.D.

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This thesis presents the findings of three study frameworks relating to how corporate governance mechanisms and the characteristics of chief executive officers (CEOs) and directors affect corporate outcomes. Specifically, chapter one is an introduction that summarizes the main content of this thesis. In chapter two, I examine the effects of external corporate governance mechanisms on the relationship between forced CEO turnovers and firm performance, using a dataset of 415 forced CEO turnovers in 2,093 U.S. public companies covering the period from 1995 to 2012. I find that although the negative connection between a forced CEO turnover and a firm performance cannot be affected by external corporate governance predominantly based on firm-level takeover defences and chosen by managers, it can be weakened by poor external corporate governance based largely on the external environment of the firm: more state-level takeover defences. However, the significant relationship between more state-level external corporate governance and turnover-performance sensitivity manifests only in idiosyncratic performance. This outcome aligns with the relative performance evaluation. Moreover, a firm with both high T-index and high GIM-index or BCF-index has a weak turnover-performance sensitivity.
This study then explores the role of CEO sensation-seeking personal trait on investment efficiency in chapter three, using a dataset of 210 pilots and 2,086 non-pilot CEOs in US public companies from 1992 to 2014. I demonstrate that CEOs who enjoy flying aeroplanes are significantly connected to investment inefficiency, and they are more likely to over-invest. To mitigate (without eliminating) the possibility of biased results driven by a non-random selection, I use propensity score matching to identify control firms without pilot CEOs. I find that the significant impact of CEO sensation-seeking on both investment efficiency and overinvestment remain. I also find that compensation design is unrelated to the sensation-seeking tendencies of CEOs. This relationship remains after I alleviate the potential endogeneity concerns using the propensity score matching approach. Thus, firms are unlikely to change CEOs' compensation structure due to their sensation-seeking personal traits, confirming the baseline results that pilots are more likely to overinvest than non-pilots.
Finally, I investigate the influence of board diversity on board monitoring and advising functions in chapter four. The sample for the monitoring function analysis covers 15,131 firm-year observations from 1999-2012, and the sample for the advising function analysis covers 26,571 firm-year observations from 1999-2019. I find that increasing the overall board diversity has no effect on the monitoring function, but it is positively associated with the advising function, which is congruent with the time limitation theory. I also find that board diversity contributed by the non-executive board has no impact on the monitoring function, but board diversity contributed by the executive board can enhance the board monitoring function. In addition, the diversity contributed by the executive board does not affect the board advising function, but the diversity contributed by the non-executive board can improve the board advising function. These results are robust after I solve the sample selection bias using propensity score matching.

Type of Work: Thesis (Doctorates > Ph.D.)
Award Type: Doctorates > Ph.D.
Licence: All rights reserved
College/Faculty: Colleges (2008 onwards) > College of Social Sciences
School or Department: Birmingham Business School, Department of Finance
Funders: Other
Subjects: H Social Sciences > HG Finance


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