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http://hdl.handle.net/2451/26730
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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.: | S-CG-01-02 |
| Abstract: | In this paper we explore some possible consequences of fallibility in
managerial decisionmaking 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
Þrm 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 Þrm
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 signif- icantly more variable for Þrms 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/2451/26730 |
| Appears in Collections: | Corporate Governance
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