The Dynamic influence of the separation of the functions of Chairman of the Board of Directors and Executive Officer on the companies’ performance
DOI:
https://doi.org/10.59051/joaf.v11i1.363Keywords:
Separation of functions, Agency theory, Stewardship theory, Listed non-financial companies, Performance.Abstract
The question of the link between the characteristics of the board of directors and the performance of firms continues to be the subject of debate (Abdeljawad & Masri, 2020; Alves, 2020). Two different theories have emerged from the literature on the dual role of the board. The agency theory (Fama & Jensen, 1983) recommends that the combination of the functions of Chairman of the Board of Directors and Chief Executive Officer negatively affects the performance of the company, because this fact increases the risk of actions opportunists on the part of the manager who would pursue his own interests at the expense of those of the shareholders. However, stewardship theory (Donaldson & Davis, 1991) suggests the opposite effect due to the unity of command it presents. The objective of this paper is to determine the effect of the separation of functions on the performance of firms. By using the dynamic LSDVC estimator on panel data from 26 listed companies over the period from 2000 to 2014, significant results are obtained. The results indicate a negative and significant effect of the separation of the functions of Director and Chairman of the Board of Directors on the performance of listed non-financial companies. These results thus confirm the stewardship theory and go against the recommendations which are often made in the logic of the financial security.
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