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Journal of Financial Economics Vol. 97 No. 1 2010

Why do firms appoint CEOs as outside directors?☆

Rüdiger Fahlenbrach1,2; Angie Low3; René M. Stulz4,5,6

1 École Polytechnique Fédérale de Lausanne · 2 Swiss Finance Institute · 3 Nanyang Technological University · 4 National Bureau of Economic Research · 5 Fisher College · 6 European Corporate Governance Institute

open access

Abstract

Companies actively seek to appoint outside CEOs to their boards. Consistent with our matching theory of outside CEO board appointments, we show that such appointments have a certification benefit for the appointing firm. CEOs are more likely to join boards of large established firms that are geographically close, pursue similar financial and investment policies, and have comparable governance to their own firms. The first outside CEO director appointment has a higher stock-price reaction than the appointment of another outside director. Except for a decrease in operating performance following the appointment of an interlocked director, CEO directors do not affect the appointing firm's operating performance, decision-making, and CEO compensation.

DOI
10.1016/j.jfineco.2010.01.003
Volume
97
Issue
1
Pages
12-32
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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