Summary:
It is common for companies to retain their former CEO on the board (Brickley et al.,1999;Korn Ferry, 2014; Lee, 2011). However, whether companies should have former CEO directors is theoretically controversial. On the one hand, former CEO directors have accumulated firm and industry expertise and social relations with company stakeholders, allowing them to fulfill their tasks effectively (Andres et al., 2014; Fahlenbrach et al., 2011).On the other hand, former CEO directors may hinder the authority of the incumbent CEO, lack independence, and prevent the company from canceling projects implemented during their tenure(Andres et al., 2014; Fahlenbrach et al., 2011), thus creating barriers to the company's efforts to improve operations through resource adjustments. Therefore, the economic consequences of retaining former CEO directors is an interesting topic that requires empirical testing. However, such research remains rare. The literature focuses on the effects of former CEO directors on management incentives and corporate performance (e.g. Andres et al.,2014; Bermig and Frick,2010;Evans et al.,2010; Fahlenbrach et al.,2011; Fiss,2006; Quigley and Hambrick,2012), while no one has investigated the impact of former CEO directors on company resource adjustment behavior. This paper uses the data on Chinese listed companies to study the impact of former CEO directors on company resource adjustment behavior from the perspective of cost stickiness. Cost behavior is a result of resource adjustment. Cost stickiness indicates that resource input is “easy to increase and hard to reduce,” which is an important perspective that reflects corporate resource adjustment behavior. We find that former CEO directors increase cost stickiness, and that this effect is more pronounced when managerial ownership is lower, the company is non-state controlled, and industry competition is less intense. We also find that former CEO directors increase cost stickiness whether they are retained as the chairman or ordinary director, and whether it is a family business or not. These results indicate that former CEO directors increase cost stickiness by hindering the corporation's reduction of resource input. These results are not explained by the effects of the former CEO directors' knowledge, experience, and social capital on corporate resource adjustment costs, or the effects of former CEO directors on management agency problems. This paper contributes to the literature in several ways. First, it enriches the research on the economic consequences of former CEO directors from the perspective of cost stickiness, which reflects the asymmetric characteristics of company resource adjustment. As cost stickiness has a direct impact on company performance, thefindings deepen our understanding of the channel through which a former CEO affectscompany performance. Second, as far as we know, no prior research has explored the impact of former CEO directors on cost stickiness. By filling this gap, this paper enriches our understanding of how cost stickiness is affected by personnel arrangements on the board, and is the first to provide empirical evidence for the “adjustment cost view” of cost stickiness from the perspective of former CEO directors. The findings have important implications for theoretical research and practice. First, we should consider the asymmetrical effects of former CEO directors on company resource adjustment when studying their effects on company performance. Second, when studying the economic consequences of former CEO directors, the moderating effects of ownership and market competition should be considered. Third, as the asymmetrical impact of former CEO directors on company resource adjustment is likely to benefit the former CEO director instead of the company, the practice of retaining former CEOs on the board may require regulation. Fourth, the empirical evidence in this paper can help companies to adjust resources more efficiently through adjusting board structure. For example, as former CEO directors make resource input “easy to increase and hard to reduce, "companies may need to avoid retaining the former CEO on the board to better promote the downward adjustment of resources.
周林洁, 刘慧龙, 章红霞. 董事会留有前任总经理会如何影响公司资源调整？——基于成本粘性视角的实证分析[J]. 金融研究, 2019, 464(2): 169-187.
ZHOU Linjie, LIU Huilong, ZHANG Hongxia. How Do Former CEO Directors Affect Corporate Resource Adjustments？. Journal of Financial Research, 2019, 464(2): 169-187.
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