Do firms with dual chief executive officers perform better than their counterparts?

• Date: 01 April 2019
• Published date: 01 April 2019
• Author: Vinita Ramaswamy,C. Joe Ueng
• DOI: http://doi.org/10.1002/jcaf.22381

BLIND PEER REVIEW

Do firms with dual chief executive officers perform better than

their counterparts?

C. Joe Ueng

1

| Vinita Ramaswamy

2

1

Department of Economics and Finance,

Cameron School of Business

Administration, University of St. Thomas,

Houston, Texas

2

Department of Accounting, Cameron

School of Business, University of

St. Thomas, Houston, Texas

Correspondence

C. Joe Ueng, Department of Economics and

Finance, Cameron School of Business

Administration, University of St. Thomas,

Houston, TX.

Email: ueng@stthom.edu

Abstract

Agency theory contends that shareholder interests require protection by separation

of the roles of board chair and chief executive officer (CEO). Duality (CEO also

chairman of the board) increases the likelihood of the CEO entrenchment by reduc-

ing board monitoring effectiveness. Stewardship theory argues that shareholder

interests are maximized by having the dual CEOs. According to stewardship the-

ory, firms with dual CEOs have some major advantages over their counterparts.

Such CEOs establish strong leadership and provide better strategic directions for

the firm. Consequently, shareholders benefit form dual CEOs. Evidence on the

relationship between dual CEO and firm performance is mixed. While some studies

found that there is a positive relationship between two variables, others found an

inverse relationship between two. This study attempts to shed some light on this

issue. Results from the study indicate that there is a statistically significantly posi-

tive relationship between dual CEO and the firm's size, the number of insider direc-

tor, and the percentage of shares held by the control shareholders. Results from this

study indicated that there is no significant relationship between the CEO duality

and financial performance in the short run. However, the firms with dual CEO, on

average, perform better than their counterparts in the long run.

KEYWORDS

duality, financial performance

1|INTRODUCTION

Due to the increasing importance of corporate governance in

the last two decades, the research in chief executive officer

(CEO) duality (a single individual serving as both CEO and

the chairman of the board [COB]) has grown substantially. Do

firms with dual CEO perform better than their counterparts?

Many studies have investigated this issue with inconsistent

results. According to agency theory, the board of director is to

supervise the management to ensure that management acts in

the best interest of shareholders. When the COB is also the

chief executive office, the conflict of interest arises. Further-

more, the agency costs increase as a result of the duality.

According to stewardship theory, however, firms with

dual CEO have some major advantages over their counter-

parts. Such CEOs establish strong leadership and provide

better strategic directions for the firm. Consequently, share-

holders benefit form dual CEOs.

Two main notions on the view of CEO duality are agency

and stewardship theories, which will be further discussed in

the literature review. This paper is to investigate the relation-

ship between the duality and firm performance. Specifically,

the study intends to answer the question: Do firms with dual

CEO perform better than their counterparts. The paper is

organized as follows:

Section 2 covers the prior literature review. Section 3 dis-

cusses the data collection. Section 4 presents the methodology.

Received: 4 March 2019 Accepted: 11 March 2019

DOI: 10.1002/jcaf.22381

J Corp Acct Fin. 2019;30:13–22. wileyonlinelibrary.com/journal/jcaf © 2019 Wiley Periodicals, Inc. 13