Monitoring Managers: Does It Matter?
- Author(s): FRANCESCA CORNELLI, ZBIGNIEW KOMINEK, ALEXANDER LJUNGQVIST
- Published: Mar 07, 2013
- Pages: 431-481
- DOI: 10.1111/jofi.12004
We study how well‐incentivized boards monitor CEOs and whether monitoring improves performance. Using unique, detailed data on boards’ information sets and decisions for a large sample of private equity–backed firms, we find that gathering information helps boards learn about CEO ability. “Soft” information plays a much larger role than hard data, such as the performance metrics that prior literature focuses on, and helps avoid firing a CEO for bad luck or in response to adverse external shocks. We show that governance reforms increase the effectiveness of board monitoring and establish a causal link between forced CEO turnover and performance improvements.