CEO-director ties and labor investment efficiency

Mehdi Khedmati, Mohammed Aminu Sualihu, Alfred Yawson

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We examine the impact of CEO-director ties on labor investment efficiency. Using an aggregate measure of CEO director ties we find that CEOs who have strong ties with independent board members are associated with inefficient labor investment. The effect is stronger in firms that rely more on skilled labor and those that are financially constrained, and that inefficient labor investment exacerbates labor cost stickiness. Our results are robust to selection bias, endogeneity concerns, and alternative explanations. Overall, the results are consistent with the view that stronger CEO ties to independent board members makes monitoring ineffective, which, in turn, aggravates the inefficient labor investment problem. Thus, we identify a potential channel through which CEO-director ties can be detrimental to shareholder value.
Original languageEnglish
Number of pages51
JournalJournal of Corporate Finance
DOIs
Publication statusAccepted/In press - 2019

Keywords

  • labor
  • investment
  • monitoring
  • CEOs
  • directors

Cite this

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abstract = "We examine the impact of CEO-director ties on labor investment efficiency. Using an aggregate measure of CEO director ties we find that CEOs who have strong ties with independent board members are associated with inefficient labor investment. The effect is stronger in firms that rely more on skilled labor and those that are financially constrained, and that inefficient labor investment exacerbates labor cost stickiness. Our results are robust to selection bias, endogeneity concerns, and alternative explanations. Overall, the results are consistent with the view that stronger CEO ties to independent board members makes monitoring ineffective, which, in turn, aggravates the inefficient labor investment problem. Thus, we identify a potential channel through which CEO-director ties can be detrimental to shareholder value.",
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CEO-director ties and labor investment efficiency. / Khedmati, Mehdi; Sualihu, Mohammed Aminu; Yawson, Alfred.

In: Journal of Corporate Finance, 2019.

Research output: Contribution to journalArticleResearchpeer-review

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AB - We examine the impact of CEO-director ties on labor investment efficiency. Using an aggregate measure of CEO director ties we find that CEOs who have strong ties with independent board members are associated with inefficient labor investment. The effect is stronger in firms that rely more on skilled labor and those that are financially constrained, and that inefficient labor investment exacerbates labor cost stickiness. Our results are robust to selection bias, endogeneity concerns, and alternative explanations. Overall, the results are consistent with the view that stronger CEO ties to independent board members makes monitoring ineffective, which, in turn, aggravates the inefficient labor investment problem. Thus, we identify a potential channel through which CEO-director ties can be detrimental to shareholder value.

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KW - investment

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