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MUTUAL MONITORING AND CORPORATE GOVERNANCE

abstract: Mutual monitoring in a well-structured authority system can mitigate the agency problem. I empirically examine whether the number 2 executive in a firm, if given authority, incentive, and channels for communication and influence, is able to monitor and constrain the potentially self-interested CEO. I find strong evidence that: (1) measures of the presence and extent of mutual monitoring from the No. 2 executive are positively related to future firm value (Tobin's Q); (2) the beneficial effect is more pronounced for firms with weaker corporate governance or CEO incentive alignment, with stronger incentives for the No. 2 executives to monitor, and with higher information asymmetry between the boards and the CEOs; (3) such mutual monitoring reduces the CEO's ability to pursue the "quiet life" but has no effect on "empire building;" and (4) mutual monitoring is a substitute for other governance mechanisms. The results suggest that mutual monitoring by a No. 2 executive provides checks and balances on CEO power. / Dissertation/Thesis / Ph.D. Business Administration 2012

Identiferoai:union.ndltd.org:asu.edu/item:14763
Date January 2012
ContributorsLi, Zhichuan (Author), Coles, Jeffrey (Advisor), Hertzel, Michael (Committee member), Bharath, Sreedhar (Committee member), Babenko, Ilona (Committee member), Arizona State University (Publisher)
Source SetsArizona State University
LanguageEnglish
Detected LanguageEnglish
TypeDoctoral Dissertation
Format100 pages
Rightshttp://rightsstatements.org/vocab/InC/1.0/, All Rights Reserved

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