The discretionary effect of CEOs and board chairs on corporate governance structures

In this study we analyze the effect of latent managerial characteristics on corporate governance. We find that CEO and board chair fixed effects explain a significant portion of the variation in board size, board independence, and CEO-chair duality even after controlling for several firm characteristics and firm fixed effects. The effect of CEOs on corporate governance practices is attributable mainly to executives who simultaneously hold the position of CEO and board chair in the same firm. Our results do not show a decline in CEO discretionary influence on corporate governance after the enactment of the Sarbanes–Oxley Act and stock exchange governance regulations.

► We analyze the effect of managerial heterogeneity on corporate governance.
► CEO and chair fixed effects explain significant portion of governance variation.
► The effect is attributable mainly to powerful CEOs who are also the board chair.
► We do not find a lower CEO discretionary influence after the Sarbanes–Oxley Act.