CEO Duality and Firm Performance: An Integration of Institutional Perceptive with Agency Theory
The recommendation of the committee on corporate
governance for public companies in Nigeria, that the position of the
CEO be separated from board chair has generated serious debate
among scholars and practitioners. They have questioned the
appropriateness of implementing corporate governance model that is
based on Anglo-Saxon agency problem characterized by dispersed
ownership structure; where markets for corporate control, legal
regulation, and contractual incentives are the key governance
mechanisms. This paper strives to resolve the argument by adopting
an institutional perspective in testing the agency theory on board
duality. The study developed a theoretical and empirical model to
better understand how ownership structure influences agency conflict
and how such affects firm performance. Hence, the study examines
the relationship between CEO duality and firm performance using
two institutional ownership structures – dispersed ownership and
concentrated ownership structures. The empirical results show that
CEO duality is negatively correlated with firm performance in
Nigeria irrespective of the firm-s ownership structure. The findings
give credence to the recommendation of the Peterside Commission
on the need to separate the position of CEO from board chair.
[1] Canadian Office of Superintendent of Financial Institutions, Corporate
Governance Principles for Financial Institutions, Canada: COSF
Publications, 2008.
[2] A. Caddury, The Financial Aspects of Corporate Governance, London:
London Stock Exchange, 1992.
[3] C. Rodgers, "The Relationship Between Board Compensation and the
Firm Value of the Farm Credit System", SS-AAEA Journal of
Agricultural Economics, pp. 1-9, 2008.
[4] M. France and D. Carney, "Why Corporate Crooks are Tough to Nail",
Business Week, pp. 37-40, 2002.
[5] K.A. Descender, "The Relationship Between the Ownership Structure
and the Role of the Board", University of Illinois Working Paper,
Retrieved on 25th August, 2009 from
http://www.business.illinois.edu/Working Papers/papers/09-0105.pdf
[6] E.F. Fama and M.C. Jensen, "Separation of Ownership and Control"
Journal of Law and Economics, Vol. 26, No. 2, pp.301-325, 1983.
[7] M. Jensen and W. Meckling, "Theory of the Firm, Managerial
Behaviour, Agency Costs and Ownership Structure, Journal of Financial
Economics, Vol. 3, pp. 305-350, 1976.
[8] D.R. Dalton, C.M. Daily, A.E. Ellstrand.and L. Johnson, L. (1998).
"Meta-Analytic Reviews of Board Composition, Leadership Structure,
and Financial Performance" Strategic Management Review, Vol. 19, 3,
pp. 269-290, 1998
[9] A. Peterside, (2003), Cod of Corporate Governance in Nigeria, Lagos:
Securities and Exchange Commission Publication, 2003.
[10] K. Bosner, "Board Composition, Structure, and Financial Performance:
An Update", Journal of Applied Business Research, Vol 23, No. 4, pp.
27-36, 2007.
[11] E. Fama, "Agency Problems and Theory of the Firm", Journal of
Political Economy, Vol. 88, pp. 288-307, 1980.
[12] S. Zahra. And J. Pearce, "Board of Directors and Corporate Financial
Performance: A Review and Integrated Model", Journal of
Management, Vol. 15, pp. 291-244, 1989
[13] A.M. Fox, "Board of Directors: The Influence of Board Size, Leadership
and Composition on Corporate Financial Performance", Commerce
Division Discussion Papers No.45, pp.1-15, 1988.
[14] L. Donaldson and J.H. Davis, J.H. "Stewardship Theory or Agency
Theory: CEO Governance and Shareholder Returns", Journal of
Management, Vol. 16, No. 4, pp. 49-64, 1991.
[15] C.A. Anderson, and R.N. Anthony, The New Corporate Directors, New
York: John Wisely and Sons, 1986
[16] R.S. Changanti, V Mahajan and S. Sharma, "Corporate Board Size,
Composition and Corporate Failures in Retailing Industry", Journal of
Management Studies, Vol. 22, No. 4, pp. 400-417, 1985.
[17] R. Stewart, "Chairman and Chief Executives: An Explanation of their
Relationship" Journal of Management Studies, 28(5): 511-527, 1991.
[18] M.K. Peng, S. Zhang and X. Li, X. "CEO Duality and Firm Performance
During China-s Institutional Transitions", Journal of Management and
Organisational Review, Vol. 3, No. 2, pp. 205-225, 2007.
[19] U.V. Sridharan and A. Marsinko, "CEO Duality in the Paper and Forest
Products Industry", Journal of Financial and Strategic Decision, Vol.
10, No. 1, pp. 59-65, 2007.
[20] A. Dey, E. Engel and X.G. Liu. "Determinants and Implications of
Board Leadership Structure" 2009., Retrieved 25th August, 2009 from
http://ssrn.com/abstract=1412827
[21] M.S. Norman, T.M. Iskander and M.M. Rahmat, M.M. (2005),
"Earnings Management and Board Characteristics: Evidence from
Malaysia" Journal Pengurusan, Vol. 24: pp. 77-103
[22] D.C. Hambrick and R.A. D-Aveni, R.A. "Top Team Deterioration as
Part of the Downward Spiral of Large Corporation Bankruptcies",
Management Science, Vol. 38, No.10, pp. 1445-1466, 1992
[23] D.A. Singh and A.S Gaur, "Business Group Affiliation, Firm
Governance and Firm Performance: Evidence from China and India,
2009.
[24] Nigeria Stock Exchange Factbook 2010
[25] A. Shleifer. and R. Vishny, "A Survey of Corporate Governance",
Journal of Finance, Vol. 52, No.), pp. 737-783, 1997.
[26] E. J. Zajac .and J.D. Westphal, (1996), "Director Reputation, CEOBoard
Power, and the Dynamics of Board Interlocks". Administrative
Science Quarterly, Vol. 41, 507-528.
[27] M. Maher and T. Andersson, "Corporate Governance: Effects on Firm
Performance and Economic Growth", OECD Working Paper: 1-51,
1999.
[1] Canadian Office of Superintendent of Financial Institutions, Corporate
Governance Principles for Financial Institutions, Canada: COSF
Publications, 2008.
[2] A. Caddury, The Financial Aspects of Corporate Governance, London:
London Stock Exchange, 1992.
[3] C. Rodgers, "The Relationship Between Board Compensation and the
Firm Value of the Farm Credit System", SS-AAEA Journal of
Agricultural Economics, pp. 1-9, 2008.
[4] M. France and D. Carney, "Why Corporate Crooks are Tough to Nail",
Business Week, pp. 37-40, 2002.
[5] K.A. Descender, "The Relationship Between the Ownership Structure
and the Role of the Board", University of Illinois Working Paper,
Retrieved on 25th August, 2009 from
http://www.business.illinois.edu/Working Papers/papers/09-0105.pdf
[6] E.F. Fama and M.C. Jensen, "Separation of Ownership and Control"
Journal of Law and Economics, Vol. 26, No. 2, pp.301-325, 1983.
[7] M. Jensen and W. Meckling, "Theory of the Firm, Managerial
Behaviour, Agency Costs and Ownership Structure, Journal of Financial
Economics, Vol. 3, pp. 305-350, 1976.
[8] D.R. Dalton, C.M. Daily, A.E. Ellstrand.and L. Johnson, L. (1998).
"Meta-Analytic Reviews of Board Composition, Leadership Structure,
and Financial Performance" Strategic Management Review, Vol. 19, 3,
pp. 269-290, 1998
[9] A. Peterside, (2003), Cod of Corporate Governance in Nigeria, Lagos:
Securities and Exchange Commission Publication, 2003.
[10] K. Bosner, "Board Composition, Structure, and Financial Performance:
An Update", Journal of Applied Business Research, Vol 23, No. 4, pp.
27-36, 2007.
[11] E. Fama, "Agency Problems and Theory of the Firm", Journal of
Political Economy, Vol. 88, pp. 288-307, 1980.
[12] S. Zahra. And J. Pearce, "Board of Directors and Corporate Financial
Performance: A Review and Integrated Model", Journal of
Management, Vol. 15, pp. 291-244, 1989
[13] A.M. Fox, "Board of Directors: The Influence of Board Size, Leadership
and Composition on Corporate Financial Performance", Commerce
Division Discussion Papers No.45, pp.1-15, 1988.
[14] L. Donaldson and J.H. Davis, J.H. "Stewardship Theory or Agency
Theory: CEO Governance and Shareholder Returns", Journal of
Management, Vol. 16, No. 4, pp. 49-64, 1991.
[15] C.A. Anderson, and R.N. Anthony, The New Corporate Directors, New
York: John Wisely and Sons, 1986
[16] R.S. Changanti, V Mahajan and S. Sharma, "Corporate Board Size,
Composition and Corporate Failures in Retailing Industry", Journal of
Management Studies, Vol. 22, No. 4, pp. 400-417, 1985.
[17] R. Stewart, "Chairman and Chief Executives: An Explanation of their
Relationship" Journal of Management Studies, 28(5): 511-527, 1991.
[18] M.K. Peng, S. Zhang and X. Li, X. "CEO Duality and Firm Performance
During China-s Institutional Transitions", Journal of Management and
Organisational Review, Vol. 3, No. 2, pp. 205-225, 2007.
[19] U.V. Sridharan and A. Marsinko, "CEO Duality in the Paper and Forest
Products Industry", Journal of Financial and Strategic Decision, Vol.
10, No. 1, pp. 59-65, 2007.
[20] A. Dey, E. Engel and X.G. Liu. "Determinants and Implications of
Board Leadership Structure" 2009., Retrieved 25th August, 2009 from
http://ssrn.com/abstract=1412827
[21] M.S. Norman, T.M. Iskander and M.M. Rahmat, M.M. (2005),
"Earnings Management and Board Characteristics: Evidence from
Malaysia" Journal Pengurusan, Vol. 24: pp. 77-103
[22] D.C. Hambrick and R.A. D-Aveni, R.A. "Top Team Deterioration as
Part of the Downward Spiral of Large Corporation Bankruptcies",
Management Science, Vol. 38, No.10, pp. 1445-1466, 1992
[23] D.A. Singh and A.S Gaur, "Business Group Affiliation, Firm
Governance and Firm Performance: Evidence from China and India,
2009.
[24] Nigeria Stock Exchange Factbook 2010
[25] A. Shleifer. and R. Vishny, "A Survey of Corporate Governance",
Journal of Finance, Vol. 52, No.), pp. 737-783, 1997.
[26] E. J. Zajac .and J.D. Westphal, (1996), "Director Reputation, CEOBoard
Power, and the Dynamics of Board Interlocks". Administrative
Science Quarterly, Vol. 41, 507-528.
[27] M. Maher and T. Andersson, "Corporate Governance: Effects on Firm
Performance and Economic Growth", OECD Working Paper: 1-51,
1999.
@article{"International Journal of Business, Human and Social Sciences:61581", author = "A. Ujunwa and P. O. Salami and A. H. Umar", title = "CEO Duality and Firm Performance: An Integration of Institutional Perceptive with Agency Theory", abstract = "The recommendation of the committee on corporate
governance for public companies in Nigeria, that the position of the
CEO be separated from board chair has generated serious debate
among scholars and practitioners. They have questioned the
appropriateness of implementing corporate governance model that is
based on Anglo-Saxon agency problem characterized by dispersed
ownership structure; where markets for corporate control, legal
regulation, and contractual incentives are the key governance
mechanisms. This paper strives to resolve the argument by adopting
an institutional perspective in testing the agency theory on board
duality. The study developed a theoretical and empirical model to
better understand how ownership structure influences agency conflict
and how such affects firm performance. Hence, the study examines
the relationship between CEO duality and firm performance using
two institutional ownership structures – dispersed ownership and
concentrated ownership structures. The empirical results show that
CEO duality is negatively correlated with firm performance in
Nigeria irrespective of the firm-s ownership structure. The findings
give credence to the recommendation of the Peterside Commission
on the need to separate the position of CEO from board chair.", keywords = "Corporate Governance, CEO-Duality, Firm
Performance.", volume = "7", number = "1", pages = "199-7", }