CEO Duality and Firm Performance: Does Economic Policy Uncertainty Mediate the Relation?

• DOI: http://doi.org/10.1111/irfi.12193
• Author: Junyoup Lee,Kiyoung Chang,Hyeongsop Shim
• Published date: 01 December 2019
• Date: 01 December 2019

CEO Duality and Firm Performance:

Does Economic Policy Uncertainty

Mediate the Relation?*

KIYOUNG CHANG

†

,JUNYOUP LEE

‡

AND HYEONGSOP SHIM

‡,§

†

College of Business, University of South Florida Sarasota-Manatee, Sarasota, FL

‡

School of Business Administration, Ulsan National Institute of Science and

Technology, Ulsan, South Korea and

§

College of Business & Economics, Gachon Univeristy, Seongnam, South Korea

ABSTRACT

Exploiting two exogenous shocks, we examine the relation between CEO–

Chairman duality and firm performance. We report evidence that CEO dual-

ity benefits a firm when economic policy uncertainty is high. This implies

that CEO–-Chairman duality is an advantageous governance mechanism for

coping with economic policy uncertainty. We show that the Sarbanes-Oxley

Act reduced firm performance if a firm had separate leadership in 2001. How-

ever, this negative effect was mitigated if a firm had combined leadership in

2001. The results suggest that CEO duality is complementary to board inde-

pendence and that the value of CEO duality is contingent on a firm’s

environment.

JEL Codes: G34; D80; G18

Accepted: 22 March 2018

I. INTRODUCTION

Recent political upheaval arising from the unexpected outcomes of presidential

elections in several countries has created substantial political uncertainty, in

turn increasing business uncertainty for corporations. This raises the general

question of how political or policy uncertainty, which can act as an exogenous

shock to corporations, affects the relation between corporate governance and

* Hyeongsop Shim appreciates the financial support from the U-K brand research fund

(1.170069.01) of Ulsan National Institute of Science and Technology and the Ministry of Education

of the Republic of Korea and the National Research Foundation of Korea (NRF-R1624791). Junyoup

Lee also appreciates the support by “Human Resources Program in Energy Technology”of Korea

Institute of Energy Technology Evaluation and Planning (KETEP), granted financial resource from

the Ministry of Trade, Industry & Energey, Republic of Korea (No. 20164010201030). The authors

are grateful for the insightful comments and suggestions by the editor and a referee, which

improved the paper a lot. All error are our own.

© 2018 International Review of Finance Ltd. 2018

International Review of Finance, 19:4, 2019: pp. 877–891

DOI: 10.1111/irfi.12193