Managerial Reputation and Firm Internal Monitoring Mechanisms

This study examines how CEO reputation affects internal corporate governance (monitoring) strength across firms. Using lagged CEO press coverage and lagged 3-year industry-adjusted firm stock performance as CEO reputation proxies, we find that when a CEO's reputation is higher, the CEO's firm exhibits weaker corporate governance along many dimensions. This study contributes to the literature by providing evidence that several CEO attributes influence a comprehensive range of corporate governance mechanisms. It also shows that governance can be regarded as endogenous and multidimensional, especially in its relation with CEO reputation and other CEO and firm attributes. Finally, it provides evidence that CEO reputation has a U-shaped relation with governance strength, thus enhancing our understanding of the observed heterogeneity in corporate governance strength across firms - it suggests that strong (weak) governance may not necessarily imply good (bad) governance as typically assumed in the literature. We also find that other CEO and firm attributes have U-shaped or inverted U-shaped relations with governance strength. These findings collectively show that the generally uni-dimensional one-size-fits-all approach to governance that has dominated much of the academic and practitioner literature, and adopted by policy-making bodies, should be reconsidered.