Our difference-in-difference estimates reveal that firms compelled to increase board independence show a smaller improvement in CEO ability than do other firms, suggesting that independent directors do not view generalist CEOs favorably. Our findings are consistent with the notion that generalist CEOs may have incentives that conflict with those of shareholders, resulting in an incentive misalignment. For instance, generalist CEOs are less likely to be risk-averse (Custodio et al., 2013; Mishra, 2014). Supporting this argument, Mishra (2014) reports that having a generalist CEO leads to a significantly higher cost of equity capital. Moreover, because generalist CEOs tend to change jobs more often, they may not take the long-term perspective required to enhance shareholder value. Furthermore, our results are consistent with those in Ma, Ruan, Wang, and Zhang (2021), who find that companies with generalist CEOs have significantly lower credit ratings, implying that credit rating agencies view generalist CEOs as a credit risk factor. Their results are consistent with ours. Both independent directors and credit rating agencies view generalist CEOs unfavorably.
We also run several checks to ensure that our findings are robust. For instance, we execute propensity score matching, where we carefully match each treatment firm to another firm outside the treatment group that is most similar based on several firm characteristics. So, our treatment and control firms are nearly identical except for board independence. This technique increases the probability that the findings are driven by board independence, not by any other firm characteristics. Moreover, an instrumental variable analysis, which is more likely to reveal a causal effect, corroborates our findings. Finally, we apply Oster’s (2019) method for testing coefficient stability and find that our conclusion is robust. exchange program in thai
Our results contribute to the debate about generalist CEOs. Most prior studies concentrate on assessing the effects of generalist CEOs on corporate outcomes and policies. Our study, however, adopts a unique approach, focusing on how independent directors view generalist CEOs. Furthermore, our study contributes to the literature that exploits the Sarbanes-Oxley Act to ascertain the effects of board independence on various corporate outcomes. Our study is the first to apply this approach to explore the impact of board independence on general managerial skills.
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