Boards, CEO entrenchment, and the cost of capital

• 成果类型: Article
• 署名作者: Dow, James
• 署名单位: University of London; London Business School
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2013.08.009
• 发表日期: 2013
• 页码: 680-695
• 关键词: Managerial entrenchment; cost of capital; corporate boards; ceo turnover

摘要

Existing research on chief executive officer (CEO) turnover focuses on CEO ability. This paper argues that board ability is also important. Corporate boards are reluctant to replace CEOs, as this makes financing expensive by sending a negative signal about board ability. Entrenchment in this model does not result from CEO power, or from agency problems. Entrenchment is mitigated when there are more assets-in-place relative to investment opportunities. The paper also compares public and private equity. Private ownership eliminates CEO entrenchment, but market signals improve investment decisions. Finally, the model implies that board choice in publicly listed firms will be conservative. (C) 2013 Elsevier B.V. All rights reserved.