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Effects of CEO Duality on Agency Problems
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CEO duality—the practice of a single individual serving as both CEO and board chair—has been the subject of academic interest for more than 20 years. In that time, boards’ use of CEO duality has fluctuated and the scholarly conceptualizations of the phenomenon have become more complex. As such, the need to understand CEO duality has only increased...
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Context 1
... in this stream has tended to seek more concrete evidence of specific agency problems linked to CEO duality by emphasizing constructs that are more proximal to CEO decision making than firm performance is. These studies, listed in Table 2, generally fall into one of three topical cate- gories: succession, entrenchment, and risk avoidance. We review each of these streams below. ...
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Citations
... Cross-membership significantly positively influences Islamic banks' performance in Indonesia (Grassa et al., 2023;Rahman & Haron, 2019). However, other studies, such as Krause et al. (2014), argue that cross-membership can reduce the independence and flexibility of SSB supervision. Hamza (2013) highlights potential conflicts of interest that may arise. ...
Research Originality: This study is amongst a few studies empirically examining the impact of the Sharia Supervisory Board's (SSB) characteristics on the financial performance of Islamic banks in Indonesia. This attribute concerns regulators and market players due to its importance in Shariah governance and Islamic banks' performance. This study encompasses both full-fledged and dual-banking Islamic financial institutions.Research Objectives: This study investigates the impact of the Sharia Supervisory Board's characteristics on the financial performance of Islamic banks in Indonesia.Research Methods: This study utilizes random-effects GLS unbalanced panel data regression analysis with panel data from 30 Islamic banks in Indonesia (13 full-fledged Islamic banks and 17 dual-banking Islamic banks) from 2018 to 2023.Empirical Results: The study highlights the pivotal role of SSB size in enhancing the financial performance of Islamic banks. The results suggest that the size of SSB has a significant positive influence on the financial performance of Islamic banks in Indonesia during the 2018- 2023 period.Implications: It provides additional rationale for the newly issued regulation regarding the SSB size in Indonesia. It also offers actionable insights into the necessity of effective governance structures to ensure the sustainable growth of Islamic banking institutions.JEL Classification: G21, G28, G34
... When a few major shareholders dominate ownership, they significantly influence the company's strategic decisions and management (Porta et al., 1998). Dual leadership examines whether the CEO and the board chairperson are the same individuals, potentially affecting decision-making efficiency and flexibility (Krause et al., 2014;Yu, 2023). The ratio of independent directors measures the board's independence and supervisory capability, with a higher proportion suggesting better corporate governance . ...
This study examines the impact of the COVID-19 pandemic on the labor size and structure within China’s hospitality and tourism industry using a difference-in-difference (DID) approach. Analyzing data from Chinese A-share non-financial listed companies from 2009 to 2022, it identifies a significant decline in labor size in the hospitality and tourism sector compared to other industries. The research highlights the moderating effects of digitalization, stock price crash risk, internal control, and environmental social governance (ESG) on labor dynamics during the pandemic. Notably, higher digitalization and lower stock crash risk attenuate labor size reductions, while higher internal control levels correlate with greater workforce reductions. Additionally, the analysis reveals disparities based on ownership structure, city scales and geolocation features, indicating that non-state-owned enterprises (non-SOEs) were more adversely affected than state-owned enterprises (SOEs). The results highlight the importance of enhancing digital capabilities and financial transparency for resilience against future disruptions, while also suggesting a reevaluation of internal controls and ESG strategies to improve adaptability during crises. Robustness checks, including the parallel trend test, lagged control variables, alternative time periods and comparisons with the technological sector, confirm the robustness of the findings.
... However, we should also note that, despite the above, Carty and Weiss (2012) examined the correlation between CEO duality and bank failure, finding no evidence of such. Notwithstanding this, we do acknowledge that our result points in a rather different direction than the one taken by regulators and governance activists, especially after the GFC, who have been putting pressure on firms to abolish CEO duality (Krause et al., 2014). Within this context we must stress that under no circumstances should the need for absolute accountability be jeopardised; rather, if the benefits of consolidated leadership outweigh its negative aspects, then these should be managed, and mitigated, through more vigilance at the board level. ...
... Moreover, a CEO who also serves as board chair has more power to influence the makeup or the functioning of the top team (Finkelstein et al., 2009). Such power concentration can limit the diversity of viewpoints on the team (Krause et al., 2014). These instruments, firm ownership (p = 0.52) and CEO duality (p = 0.26), were chosen to be exogenous to competitive propensity . ...
... What is the impact of CEO characteristics on the repercussions of team diversity? An authoritative CEO can facilitate consensus within a team (Chen et al., 2021;Krause et al., 2014), while an indecisive one may become overwhelmed and add to the problem. ...
... We control for the executive role an individual executive plays within the firm using the variables CFO (0 = non-CFO executive director, 1 = CFO) and CEO (0 = non-CEO executive director, 1 = CEO). The indicator variables Duality (0 = non-dual CEO, 1 = dual CEO) and Board Chair (0 = non-board chair, 1 = board chair) control the executive directors' power and influence within the firms' decision-making apparatus (Krause, Semadeni, and Cannella 2013). ...
We examine the speed of advancements and exits of female executive directors vis‐à‐vis comparable men. In line with recent research, we suggest that women are likely to experience an apparent gender‐based advantage in the form of lower age at the time of their first‐ever executive director appointment. However, we argue that this advantage may be transitory. Appointed women also experience faster exits from these positions, with age partially mediating the differential speed of exits between male and female executive directors. We also contend that these effects are contingent on countries' local gender norms (especially women's economic participation) such that lower gender parity leads to even lower ages at appointments and faster exits for female executive directors. Results based on 15,202 unique rookie executive directors from 33 countries between 2002 and 2015 largely support these predictions.
... If the measurement of innovation output relies on the count of patent applications, whether they pertain to a single invention or not, it is more likely to assess a firm's capacity to submit patent applications rather than its effectiveness in generating novel knowledge. 8 Previous literature, includingFinkelstein (1992),Finkelstein et al. (2009), andKrause et al. (2014), has identified that CEO duality reflects reduced board oversight and increased CEO power. ...
The contribution of knowledge capital to firm value has increased significantly, from 25% in the 1970s to 45% in the 2010s (Belo et al. in Decomposing firm value J Financ Econ 143:619–639, 2022). However, what influences firms’ ability to maximize the effect of knowledge capital on firm value? Drawing on insights from upper echelons, agency, and behavioral agency theories, we show that CEO characteristics are crucial in enabling firms to take advantage of knowledge stock. We empirically demonstrate that short-term CEO compensation structures are detrimental to a firm’s ability to take advantage of its knowledge stock. We further show that CEO power enhances knowledge stock and R&D intensity. Our study provides direct empirical evidence of the importance of CEO compensation structure and corporate governance in understanding firm value in a knowledge economy.
... In the small firms, the executive directors control the key position such as chairperson and chief executive officer which lead to the positive relationships with remuneration. For example, executive ownership (Kumar and Zattoni, 2016), family member (Chen and Lee, 2008), and CEO duality (Krause, Semadeni, and Cannella, 2014) shows a positive relationship with total remuneration. Thus, the relationship between a number of meeting and remuneration will have a positive relation. ...
... When the CEO is also a board chair (CEO duality), agency theory suggests that the agency problem will increase (Krause et. al., 2014). In addition, the combined leadership CEO duality weakens the monitoring role of the board over the executive manager; this has a negative effect on corporate performance (Elsayed, 2007). Therefore, agency theory suggests a negative relationship between CEO duality and remuneration (Boyd et al., 2012). It is believed that when the CEO a ...
The study examines the relationship between corporate governance mechanisms on directors’ remuneration of listed small and medium scale firms in Malaysia. It was conducted over the period 2014 to 2017 on the 274 listed small and medium enterprises on Bursa Malaysia. Six potential corporate governance mechanisms were utilized as surrogates including size, executive ownership, CEO duality, family relationship, independent non-executive directors on the remuneration committee, and board meetings; amount of remuneration package of all the directors was used as dependent variables. By controlling for potential endogeneity among the variables, the study estimates the data with system dynamic generalised method of moment. The results from this estimate reveal that five out of six corporate governance mechanisms significantly affect the directors’ remuneration among listed small and medium enterprises in Malaysia. The study concludes that CEO duality, board size, directors’ ownership, the presence of independent directors on the remuneration committee and board meetings have a significant impact on directors’ remuneration among listed small and medium enterprises in Malaysia. The study provides insights into the relevance of agency theory in the context of corporate governance research. The use of GMM as an estimator made the results from the study align closely with this theory which ordinary would have been rejected. Also, the current study fills the gap identified in the literature regarding corporate governance and directors’ remuneration among small and medium enterprises in a majority-world economy.
... A meta-analysis by Krause et al. (2014) concluded that research on the relationship between corporate performance and CEO/Chair duality offers a more mixed picture. The main argument in favour of CEO/Chair duality might perhaps explain this result. ...
Competition law infringements have been theorised to be a consequence of flawed monitoring by the board of directors. The focus of European Union competition law on sanctioning undertakings, rather than individuals, offers a particularly interesting context to empirically test this theory. The study uses agency theory for this purpose to analyse the relationship between a number of characteristics of the board of directors and European Union competition law infringements. It encompasses all listed undertakings that have committed a European Union competition law infringement since 2003, irrespective of their nationality. After controlling for temporal, geographic and industry-related effects, it finds that a CEO/Chair duality is associated with an increased likelihood of committing an EU competition law infringement, while increased gender diversity is associated with a decreased likelihood. No relationship was found between European Union competition law infringements and the ratio of non-executive directors, the ratio of directors appointed after the CEO, board tenure, CEO tenure, CEO compensation or the size of the board. The results indicate that future governance initiatives aimed at increasing gender diversity and separating the functions of CEO and chairperson might also be relevant for competition law policy.
... CEOD presents significant governance challenges, particularly regarding EI, as it often results in a concentration of power that weakens board independence and reduces oversight effectiveness in sustainable practices (Krause et al., 2013;Ghardallou, 2022). Agency Theory advocates for separating the roles of CEO and chairman to maintain the necessary independence for effective governance (Korir and Tenai, 2020). ...
... BOIN is the percentage of independent directors, potentially enhancing EI through stronger oversight (García-Sánchez et al., 2019b;Omran et al., 2021). CEOD is captured as a binary variable where a value of 1 indicates the CEO also serves as chairman, centralizing decisionmaking (Krause et al., 2013;Nadeem et al., 2020). ...
... The regression analysis confirms H4, indicating that CEOD negatively impacts EI, as shown by a significant beta coefficient of −3.277 and a 1% p-value. This supports Agency Theory's argument that combining CEO and chair roles reduces board independence, impairing the board's capacity to promote environmental strategies (Krause et al., 2013;Ghardallou, 2022). Separating these roles is essential for maintaining independence and unbiased decision-making, ensuring alignment with long-term shareholder and stakeholder interests, including environmental goals (Korir and Tenai, 2020;Rossi et al., 2021). ...
Purpose-This study aims to investigate the impact of various board characteristics on environmental innovation (EI) among companies listed on the STOXX Europe 600. It also examines the moderating role of CSR committees on the board-EI nexus. Design/methodology/approach-The sample consists of companies listed on the STOXX Europe 600 index over 12 years (2011-2022). This study uses the Refinitiv Eikon database to evaluate the extent of EI. Panel data regression analysis is used, with two-stage least squares and lagged models used as robustness tests to control for endogeneity. Findings-The results indicate that board independence and gender diversity significantly increase EI, whereas CEO duality negatively impacts it. Other board attributes, such as board size, show no impact on EI. In addition, the presence of CSR committees moderates these relationships, enhancing the positive effects of gender diversity and board independence and mitigating the negative impact of CEO duality. Practical implications-This study provides valuable insights for policymakers and corporate strategists aiming to advance environmental responsiveness through strategic board composition and establishing CSR committees. Emphasizing the importance of board independence, gender diversity and CSR committees, the findings suggest practical pathways for enhancing the adoption of EI by creating governance structures that support sustainable practices. Originality/value-To the best of the authors' knowledge, this is the first study to examine the moderating role of CSR committees on the associations between board characteristics and EI. This research addresses a crucial gap in the current literature, enriching the understanding of corporate governance and sustainability. It provides critical insights for developing policies and strategies that promote EI through effective board composition and the implementation of CSR committees.
... Moreover, we include in Table 1 variables indicating whether the CEO sits on the board, whether the SME has two CEOs and whether a single individual serves as the SME's CEO and chairperson, referred to as CEO duality (Krause et al., 2014). The existing literature highlights the potential advantages and disadvantages of CEO duality. ...
We investigate non-financial variables for predicting bankruptcy in small and medium-sized enterprises (SMEs). The variables encompass management, board and ownership structures and are sourced from universally accessible information, rendering them available to all stakeholders and allowing for the analysis of all SMEs within a market. Using a large and recent sample of SMEs, we empirically examine the variables that predict bankruptcy over time horizons of one, two and three years. Our analysis incorporates state-of-the-art discrete hazard models, the least absolute shrinkage and selection operator (LASSO), extreme gradient boosting (XGBoost), adaptive boosting (AdaBoost), bagging and random forest. We also test robustness using balanced datasets generated using the synthetic minority oversampling technique (SMOTE). We find that including non-financial variables enhances bankruptcy predictions compared to using financial variables alone. Moreover, our results show that among our variables, the most significant non-financial predictors of bankruptcy are the age of chief executive officers (CEOs), chairpersons and board members, as well as ownership share and place of the board members’ residences.
