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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26568
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| Title: | Fallible Executives, Centralization of Decision-Making and Corporate Performance |
| Authors: | Adams, Renée B.
Almeida, Heitor
Ferreira, Daniel |
| Issue Date: | 9-Sep-2001 |
| Series/Report no.: | FIN-01-026 |
| Abstract: | In this paper we explore some possible consequences of fallibility in
managerial decision making for firm performance. Based on Sah and
Stiglitz (1991), we develop the hypothesis that if managers are
fallible, firm performance will be more variable as the number of
managers participating in decision-making decreases, i.e. as the firm
becomes more centralized. We use characteristics of the Executive Office
to develop a proxy for the number of executives participating in top
decision-making. For example, we argue that if the Chairman of the Board
is not the CEO, decision-making in the firm will be more decentralized
because the Chairman will also participate in decision-making. We test
our hypothesis using this proxy (which we call the centralization
index), and find that the evidence is consistent with our hypothesis.
Firm performance (measured by Tobin s Q, stock returns and ROA) is
significantly more variable for firms with greater values of our
centralization index. The results are consistent across various tests
designed to detect differences in variability. |
| URI: | http://hdl.handle.net/2451/26568 |
| Appears in Collections: | Finance Working Papers
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