Causes and Consequences of the CEO Also Being the Chair-of-The-Board

Abstract

We examine whether a firm’s operating environment influences the likelihood that the CEO is also the Chair of the board of directors. Specifically, using robust regression techniques, we find that when a firm has greater advisory needs and is more reliant on managerial initiatives for innovation, the firm is more likely to appoint its CEO as the Chair. We also examine whether CEO-Chairs use their greater bargaining power to extract rents from their firms. We find that CEO-Chairs are not more likely to extract rents compared to CEOs who are not Chairs. Collectively, these findings indicate that the decision by firms to appoint their CEOs as Chairs is optimally determined by the firms’ operating environment and that these CEO-Chairs do not use their greater power to extract rents from their firms. The methodology employed, two-stage least squares versus propensity-score matching, appears to make a difference in the findings we obtain. By adopting the propensity-score matching procedure, we overturn some well-documented findings in prior research.