leadership structure separating the ceo and chairman of the.pdf

Journal of CORPORATE FINANCE E L S E V I E R Journal of Corporate Finance 3 (1997) 189-220 Leadership structure: Separating the CEO and Chairman of the Board 1 James A. Brickley a, *, Jeffrey L. Coles h, Gregg Jarrell c a William E. Simon Graduate School of Business, University of Rochester, Rochester, NY 14627, USA b School of Business, Arizona State UniversityArizona, USA c William E. Simon Graduate School of Business, University of Rochester, Rochester, USA Abstract Shareholder activists and regulators are pressuring U.S. firms to separate the titles of CEO and Chairman of the Board. They argue that separating the titles will reduce agency costs in corporations and improve performance. The existing empirical evidence appears to support this view. We argue that this separation has potential costs, as well as potential benefits. In contrast to most of the previous empirical work, our evidence suggests that the costs of separation are larger than the benefits for most large firms. JEL classification: G34; G3 Keywords: Corporate Governance; CEOs; Board of Directors 1. Introduction and overview Many commentators complain that boards of directors of U.S. companies fail to provide adequate discipline of top managers. O f particular concern is the c o m m o n * Corresponding author. Tel.: + 1-716-2753433. 1We th