TY - JOUR
T1 - CEO-director ties and labor investment efficiency
AU - Khedmati, Mehdi
AU - Sualihu, Mohammed Aminu
AU - Yawson, Alfred
PY - 2020/12
Y1 - 2020/12
N2 - 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.
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.
KW - CEOs
KW - Directors
KW - Investment
KW - Labor
KW - Monitoring
UR - http://www.scopus.com/inward/record.url?scp=85070668151&partnerID=8YFLogxK
U2 - 10.1016/j.jcorpfin.2019.101492
DO - 10.1016/j.jcorpfin.2019.101492
M3 - Article
AN - SCOPUS:85070668151
SN - 0929-1199
VL - 65
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
M1 - 101492
ER -