Board Antecedents of CEO Duality and the Moderating Role of Country‐level Managerial Discretion: A Meta‐analytic Investigation

AuthorKaitlyn DeGhetto,B. Parker Ellen,Gang Wang,Bruce T. Lamont
DOIhttp://doi.org/10.1111/joms.12408
Published date01 January 2019
Date01 January 2019
© 2018 John Wiley & Sons Lt d and Society for the Adva ncement of Management Stud ies
Board Antecedents of CEO Duality and the
Moderating Role of Country-level Managerial
Discretion: A Meta-analytic Investigation
Gang Wang, Kaitlyn DeGhetto, B. Parker Ellen and
Bruce T. Lamont
Florida S tate University; Unive rsity of Colorado Colorado S prings; Northeast ern University; Flor ida
State University
ABST RACT CEO duality re duces boards’ monitori ng capacity. But governance substitution
theory holds that boa rds of directors who can effectively mon itor their CEOs are more l ikely to
adopt the CEO dualit y governance structure. By exam ining relationships between boa rd
characteri stics underlying their monitoring c apacity and CEO duality, we bring evidence to
bear on governance subst itution theory. Further, by applying a manageria l discretion theory
lens to CEO dualit y, we extend governance substitution t heory to the cross-country contex t
where institutiona l features var y in their constraints on man agerial discretion. Meta-an alytic
results from a data set of 297 studies across 32 countries/regions provided support for the
majority of our predict ions. As predicted , board independence and certain ty pes of board
human capital were posit ively related to CEO duality. Unexpectedly, board owners hip was
negatively related to CEO du ality. Additionally, country-level mana gerial discretion sign ifi-
cantly moderated the boa rd independence- and human capital-dua lity relationships (but not
the board-ownership-duality relationship) as predicted.
Keywo rds: board monitoring, CEO du ality, governance substitution, manager ial discretion,
meta-ana lysis
INTRODUCTION
CEO duality is t he practice of consolidating the CEO and board cha ir positions into a
single role (Finkelstei n and D’Aveni, 1994). This practice reduces the board of directors’
monitoring capacity (e.g., Dalton and Dalton, 2011) and gives a CEO greater discretion
Journal of Man agement Studi es 56:1 January 2019
doi: 10.1111/ jom s.124 08
*Address for rep rints: Gang Wang, D epartment of Mana gement, College of Busines s, Florida State Univer sity,
Tallahassee , FL 32306, USA (gwan g5@business.fsu.edu).
Board Antecedents of Duality 173
© 2018 John Wiley & Sons Lt d and Society for the Adva ncement of Management Stud ies
(Dalton and Kesner, 1987; Hambrick and Finkelstein, 1987) that can result in both
positive and negative outcomes for their firm s (see, Bergh et al., 2016; Boyd, 1994, 1995;
Dalton et al., 1998; Finkelstein et al., 200 9; Krause et al., 2014). On the one hand, the
greater manageria l discretion that comes with CEO duality prov ides stronger and more
decisive leadership (Fi nkelstein, 1992; Finkelstein et al., 2009), which may be necessar y
for superior performance, particula rly in certain contexts (B oyd, 1995; Finkelstein and
D’Aveni, 1994). On the other hand, the greater discret ion afforded by duality enables
the CEOs to take advantage of their position power and pursue self-serving actions
that may not be in the best interests of their f irms (Fama and Jensen, 1983; Mizruchi,
1983). Therefore, the greater managerial discret ion that duality provides entails signif-
icant risk for boards of directors due to t heir reduced monitoring capacity (Dalton and
Dalton, 2011; Dalton et al., 2007).
Given the risks involved in affording CEOs more discretion through duality, why do
boards of directors support the practice? Governance substitution theory holds that
strong boards of directors who can effectively monitor the CEOs are more comfortable
in granting CEOs the additional discretion of the dual position (Krause et al., 2014).
That is, drawing largely on agency theory (e.g., Fama and Jensen, 1983), board monitor-
ing capacity is viewed as an acceptable substitute for the better monitoring properties of
non-duality, or separating the CEO and chair roles (Rediker and Seth, 1995). Received
theory, therefore, generally posits a positive relationship between board monitoring ca-
pacity and CEO duality. Further, there is a general consensus in the governance litera-
ture that independent, knowledgeable, and motivated boards have greater monitoring
capacity than boards that lack these features (see, Fama and Jensen, 1983; Finkelstein
and D’Aveni, 1994; Hambrick et al., 2015). Independence provides the objectivity to
assess the decisions and actions of the CEO (Dalton et al., 2007; Fama and Jensen, 1983;
Hambrick et al., 2015). Knowledge, or the human capital of the board members, pro-
vides the capacity to evaluate the CEO’s performance (Hambrick et al., 2015; Hillman
and Dalziel, 2003). And incentives like stock ownership in the firm can provide the mo-
tivation needed for the board members to diligently monitor the CEO (Baysinger and
Butler, 1985; Dalton et al., 2007; Mizruchi, 1983). Thus, it is consistent with governance
substitution theory and the board monitoring literature to expect board independence,
board human capital, and board stock ownership to be positively related to CEO duality.
Despite the strong theoretical consensus in the governance literature that the afore-
mentioned board characteristics are important antecedents of CEO duality, only a hand-
ful of studies have explicitly examined these relationships (e.g., Finkelstein and D’Aveni,
1994; Harrison et al., 1988; Rediker and Seth, 1995). As Krause et al. (2014) noted
in their extensive review of the CEO duality literature, ‘What little evidence exists on
the governance antecedents of CEO duality, then, provides fairly strong evidence that
boards use the separate board leadership structure as a substitute for other governance
mechanisms’ (p. 277). However, these authors then note that the evidence ‘remains too
sparse to generate firm conclusions’ (p. 278).
More importantly, no work has examined potential differences in these antecedents
across countries. This is problematic because findings from the large and growing liter-
ature on comparative corporate governance across countries (e.g., Aguilera et al., 2012;

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