Duality Essay

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CEO Duality and Firm Performance: Evidence from an Exogenous Shock to the Competitive Environment Tina Yanga, , Shan Zhaob a * School of Business, Villanova University, Villanova, PA, USA b Grenoble Ecole de Management, France Abstract Regulators and governance activists are pressuring firms to abolish CEO duality (Chief Executive Officer also being the Chairman of the Board). However, the literature provides mixed evidence on the relation between CEO duality and firm performance. Using the exogenous shock of the 1989 Canada-United States Free Trade Agreement, we find that duality firms outperform non-duality firms by 3-4% when their competitive environments change. Further, the performance difference is larger for firms with higher information costs and better corporate governance. Our results underscore the benefits of CEO duality in saving information costs and making speedy decisions. JEL classification: G34; G38; K22 Keywords: CEO duality, firm performance, corporate governance, endogeneity, competitive environments We would like to thank Yung-Yu Ma and David Yermack for their generosity in sharing their data with us. We also thank Russell Chomiak, Paul Hanouna, Wan Hong, Steve Miller, Nancy Margolis, Shawn Mobbs, David Oesch, Sukesh Patro, Jesus Salas, and the seminar participants at the 2011 Asian Finance Association International Conference, the 2011 Financial Management meetings, the 2013 Conference of the Swiss Society for Financial Market Research, the 2013 Conference “Twenty Years after Cadbury, Ten Years after Sarbanes-Oxley: Challenges of Corporate Governance,” the 2013 International Finance and Banking Society Nottingham Conference, Lehigh University, and Villanova University. We gratefully acknowledge research support from the Center for Global Leadership at Villanova University. Corresponding author: Tina Yang, Finance Department,
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