Do firms with dual chief executive officers perform better than their counterparts?

Abstract

Agency theory contends that shareholder interests require protection by separation of the roles of board chair and chief executive officer (CEO). Duality (CEO also chairman of the board) increases the likelihood of the CEO entrenchment by reducing board monitoring effectiveness. Stewardship theory argues that shareholder interests are maximized by having the dual CEOs. According to stewardship theory, firms with dual CEOs have some major advantages over their counterparts. Such CEOs establish strong leadership and provide better strategic directions for the firm. Consequently, shareholders benefit form dual CEOs. Evidence on the relationship between dual CEO and firm performance is mixed. While some studies found that there is a positive relationship between two variables, others found an inverse relationship between two. This study attempts to shed some light on this issue. Results from the study indicate that there is a statistically significantly positive relationship between dual CEO and the firm's size, the number of insider director, and the percentage of shares held by the control shareholders. Results from this study indicated that there is no significant relationship between the CEO duality and financial performance in the short run. However, the firms with dual CEO, on average, perform better than their counterparts in the long run.