Do outside directors matter? the impact of prestigious CEOs on firm performance

Abstract

Purpose

The effect of prestigious CEOs on firm performance is not clear. By integrating resource dependence and agency theories, this paper aims to focus on how prestigious CEOs affect firm performance and how informal relations between the CEO and outside directors affect agency costs and resource benefits associated with prestigious CEOs.

Design/methodology/approach

The authors use ordinary least squares (OLS) regression to analyze their data set, which is conducted by a sample of 4,226 Chinese listed firms from 2009 to 2013. The authors also use OLS regression to assess the sensitivity and robustness of their findings.

Findings

The findings indicate that prestigious CEOs are significantly and positively associated with firm performance. Moreover, the authors find the effect of prestigious CEOs on firm performance is more pronounced when prestigious outside directors interact with prestigious CEOs. Guanxi – a Chinese concept similar to camaraderie – attenuates this association, particularly when the CEO and outside directors share the same surname.

Research limitations/implications

Future research should consider whether there is a mediating link between prestigious affiliates (i.e. CEOs) and firm performance.

Practical/implications

This paper provides two practical implications. First, China Securities Regulatory Commission policymakers should pay more attention to outside directors’ quality and ability and their informal guanxi with the CEO. Second, prestigious CEOs may also have potential costs.

Originality/value

This study contributes to corporate governance literature and CEO-board relations literature by shedding light on how resource dependence and agency theories apply to corporate governance.

Citation

Zhang, L., Zhang, Z., Jia, M. and Ren, Y. (2017), "Do outside directors matter? the impact of prestigious CEOs on firm performance", Chinese Management Studies, Vol. 11 No. 2, pp. 284-302. https://doi.org/10.1108/CMS-10-2016-0199