Outside Board Memberships of CEOs: Expertise or Entrenchment?

Benjamin Balsmeier · Achim Buchwald · Heiko Peters

55 citations0/0 files storedRePEc: Research Papers in Economics

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Corporate Finance and Governance Gender Diversity and Inequality Political Influence and Corporate Strategies

Abstract

We investigate whether outside board memberships of CEOs signal expertise or entrenchment. The analysis is based on panel data of the largest German companies covering the period from 1996 to 2008. Supporting the entrenchment hypothesis, our analysis reveals that firms having a CEO with one or more outside mandates suffer from significantly weaker firm performance compared with firms having a CEO without any outside board mandates. Moreover, disciplinary CEO turnovers become less likely and turnover-performance sensitivity declines with rising board memberships of the top manager. We conclude that outside mandates enhance managerial power at the expense of the home firm's shareholders.

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References

2001Econometric Analysis of Cross Section and Panel Data 1983Separation of Ownership and Control 1978Specification Tests in Econometrics 1999Corporate Ownership Around the World 2000Investor protection and corporate governance 1996Higher market valuation of companies with a small board of directors 2010The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey 2003Executive Compensation as an Agency Problem

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