The Retention of Underperforming CEOs and the Implications on Collusion – Controlling Management and Preventing Collusion by Strengthening the Independence of the Board

10 Pages Posted: 14 Dec 2016

See all articles by HwaRyung Lee

HwaRyung Lee

Korea Development Institute (KDI)

Date Written: December 14, 2016

Abstract

An analysis of Korean firm data reveals that there is a higher tendency for CEOs in cartel firms to maintain their posts when the overall industrial performance, and not the individuals’ relative performance, is high. This implies that an incentive for collusion, instead of competition, is created. Meanwhile, the outside directors of cartel firms have more social connections with the CEO in many cases and cast fewer opposing votes than those at competitive firms. Considering that CEO replacement is not pertinent to relative performance when a large proportion of the board of directors is close to the CEO or when there are no dissenting votes, enhancing board independence can deter the inclination to collude.

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Keywords: cartel, product market competition, corporate governance, CEO

Suggested Citation

Lee, HwaRyung, The Retention of Underperforming CEOs and the Implications on Collusion – Controlling Management and Preventing Collusion by Strengthening the Independence of the Board (December 14, 2016). KDI FOCUS (No. 77, eng.) , Available at SSRN: https://ssrn.com/abstract=2885189

HwaRyung Lee (Contact Author)

Korea Development Institute (KDI) ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)

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