Abstract
This study intends to examine the conditions under which firms that separate chair and CEO roles can really benefit from this governance practice and achieve higher firm performance. We reason that to help the chair to navigate his or her official domain and the CEO to better understand what to expect when working with the chair, it is necessary for the firm to articulate and institutionalize chair’s authority through formal channels. Accordingly, we predict that in a firm with chair-CEO separation, formalization of chair’s authority is positively related to firm performance. Meanwhile, we argue that the performance effect of this formal force is subject to the influence of informal force between chair and CEO. Particularly, we expect chair-CEO demographic similarity to strengthen the performance effect of formalization of chair’s authority and chair-CEO achievement similarity to weaken it. Data from an unbalanced panel of 285 S&P 500 companies with 1884 observations from 2010 to 2019 supports our hypotheses. The results indicate that chair-CEO separation is a more nuanced phenomenon than the extant literature would suggest.
Published Version
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