Management Accounting Section Midyear Meeting

Executive Sessions, Director Communications, and CEO Turnover

• In Event: Top Executive Performance and Pay

Abstract

This paper examines whether the mandating of executive sessions in corporate boards improve CEO turnover-performance sensitivity. Corresponding to the corporate scandals in the early 2000’s, in 2003, NYSE and NASDAQ set requirements for listed firms to schedule regular executive sessions, where independent directors meet among themselves without the presence of the management. Consistent with the theories on board communications and decision-making, we find that mandating executive sessions improves CEO turnover-performance sensitivity for firms that didn’t voluntarily practice executive sessions in the pre-mandate period. Further, consistent with predictions, the effect of executive sessions is stronger for firms with more intangible assets, for firms with more long-tenured independent directors, and weaker for firms in high litigation risk industries. Lastly, in the post-mandate period, there exists an inversed U relationship between executive session practice intensity and CEO turnover-performance sensitivity. Overall, the findings reveal to us the effect of director executive sessions, a heretofore unstudied corporate governance mechanism.

Author

• Yijing Jiang, Concordia University