Infoscience

Working paper

Essays on Corporate Governance

This dissertation comprises two essays oncorporate governance. The second essay, "Founder-CEOs and Stock MarketPerformance," compares the stock market performance of firms headed byfounder-CEO firms with successor-CEO firms. Eleven percent of the largest U.S.public firms are headed by their founder. This essay examines how these firmsdiffer in firm behavior, valuation, and performance. Study was based on asample drawn from2,327 large, publicly listed U.S. firms for 1992-2002; asample of 361 founder-CEO firms was identified. Found that founder-CEO firms produce higher return on assets and have higherfirm valuation; these results are robust when controlled fro managerialownership, which is due to founder-CEO's role. Founder-CEO firms invest more inR&D;, have higher capital expenditures, and execute more focused mergers andacquisitions. It is the founder-CEO who adds value, not characteristics of thefounder-CEO firm. Founder-CEOs make management decisions that positively affectvaluation and performance. Annual stock market returns for founder-CEO firms for 1992-2002 were 8.3percent (equal-weighted strategy) or 10.7 percent (value-weighted strategy)when compared against industry and performance matched benchmarks. Whencontrolling for firm characteristics, CEO characteristics, and industryaffiliation, return was 4.4 percent. Three hypotheses are examined to explain stock market results: (1)unexpected abnormal accounting performance, (2) an implicit target premium, and(3) corporate governance premium. None of these hypotheses explained the excessstock market performance. Also found little evidence that excess performance isdue to corporate governance mechanisms. The main difference appears to be dueto composition of boards of directors and boards' subcommittees.(TNM)

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