Number Two Executives: Bottom-up Monitoring
41 Pages Posted: 9 Mar 2014 Last revised: 29 Feb 2024
Date Written: February 28, 2024
Abstract
This paper empirically examines whether the number two executive in a firm could possibly mitigate the agency problems by monitoring the CEO from bottom up. While the CEO has always been the focus, little work has been done on the number two executive. This study promotes a comprehensive understanding of these top executives and their roles in the bottom-up monitoring mechanism. The results suggest that (1) the bottom-up monitoring provided by number two executives improves firm value; (2) the effect is greater for firms with weaker corporate governance or CEO incentive alignment; (3) the bottom-up monitoring is more important in the post-SOX environment; (4) such monitoring reduces the CEO’s ability to pursue the “quiet life” but has no effect on “empire building.”
Keywords: Bottom-up monitoring, Corporate governance, Agency problem, Empire building, Quiet life, Sarbanes-Oxley Act
JEL Classification: G34, G32, D23, J33
Suggested Citation: Suggested Citation