Third-party endorsements of CEO quality, managerial discretion, and stakeholder reactions

Theodore L. Waldron, Scott D. Graffin, Joseph F. Porac, James B. Wade

Research output: Contribution to journalArticle

8 Scopus citations

Abstract

Research on the influence of third-party endorsements of CEO quality generally does not account for the context in which such signs manifest. To address this limitation, the present study examines how a CEO's level of managerial discretion shapes boards' and shareholders' responses to external endorsements of his or her quality. Managerial discretion refers to the range of strategic options that executives have at their disposal in a given business context. The findings indicate that boards only react to CEO endorsements in high-discretion settings, and this reaction is positive (i.e., more pay). In contrast, shareholders - regardless of discretion levels - positively respond to CEO endorsements in the short-term, while these responses become more equivocal over the time. These results suggest that - at least in the short term - directors more adeptly interpret and respond to external information about CEO quality than shareholders.

Original languageEnglish
Pages (from-to)2592-2599
Number of pages8
JournalJournal of Business Research
Volume66
Issue number12
DOIs
StatePublished - Dec 2013

Keywords

  • CEO quality
  • Corporate governance
  • Executive compensation
  • Firm market value
  • Managerial discretion
  • Third-party endorsements

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