Monitoring managers: Does it matter?

Francesca Cornelli*, Zbigniew Kominek, Alexander Ljungqvist

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

65 Scopus citations

Abstract

We study how well-incentivized boards monitor CEOs and whether monitoring improves performance. Using unique, detailed data on boards' information sets and decisions for a large sample of private equity-backed firms, we find that gathering information helps boards learn about CEO ability. "Soft" information plays a much larger role than hard data, such as the performance metrics that prior literature focuses on, and helps avoid firing a CEO for bad luck or in response to adverse external shocks. We show that governance reforms increase the effectiveness of board monitoring and establish a causal link between forced CEO turnover and performance improvements.

Original languageEnglish (US)
Pages (from-to)431-481
Number of pages51
JournalJournal of Finance
Volume68
Issue number2
DOIs
StatePublished - Apr 2013

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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