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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26206
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| Title: | Why Do CEO's Reciprocally Sit On Each Other's Boards? |
| Authors: | Fitch, Eliezer M.
White, Lawrence J. |
| Keywords: | Interlocking directorates
CEOs
Board of directors
Corporate governance
Stock options |
| Issue Date: | 16-Jan-2001 |
| Series/Report no.: | EC-01-03 |
| Abstract: | The reciprocal interlocking of chief executive officers (CEOs) is a
non-trivial phenomenon of the composition of boards of directors and of
corporate governance: among large companies in 1991, about one company
in seven is part of a relationship whereby the CEO of one company sits
on a second company's board and the second company's CEO sits on the
first company's board. We are aware of no previous efforts to explain
these reciprocal relationships. We hypothesize that reciprocal CEO
interlocks are (a) more likely when a board has more outside
directorships, (b) less likely when a CEO has more of his total annual
compensation paid in the form of stock options, (c) less likely when a
company's board is more active and holds more meetings, (d) less likely
when a CEO has a larger ownership share of his company, and (e) more
likely when there are more CEOs from other companies as outside
directors on a CEO's board. Using a sizable sample of large companies in
1991, we employ simple probit and step probit models to test these
hypotheses, with the use of control variables that encompass other
company, board, and CEO characteristics. These multivariate analyses
support our first three conjectures but do not support the remaining
two. Since there is considerable academic and policy debate concerning
board composition and the effectiveness of interlocking directorships in
general, investigations focusing on reciprocal CEO interlocks, which
link the highest ranked executives of two different firms, represent a
significant contribution to the knowledge base in this field. |
| URI: | http://hdl.handle.net/2451/26206 |
| Appears in Collections: | Economics Working Papers
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