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The effect of board and chairperson independence: an examination of CEO dismissal in Australia

The effect of board and chairperson independence: an examination of CEO dismissal in Australia The purpose of the paper is to examine the effectiveness of board and chairperson independence as a corporate governance mechanism. We examine 4,637 Australian firms over the period 2004 to 2008. The study presents a multinomial model of CEO dismissal. Our results indicate that independent chairpersons alone are not sufficient to discipline CEOs by dismissal, whereas independent boards are more likely to dismiss a CEO than non-independent boards. We also find that the impact of independent boards becomes more pronounced when independent boards are accompanied by independent chairpersons. The findings imply that board independence and chairperson independence can be powerful corporate governance tools the effects of which are greater if both board and chairperson are independent. These findings support the efforts by the ASX and other regulators to implement independence principles with respect to the disciplining of senior management. This study provides an initial empirical examination of the joint relationship of board and chairperson independence in an Australian context. Keywords: board independence; governance; Australia. chairperson independence; corporate Reference to this paper should be made as follows: Mackay, W., Shan, Y.G. and Howieson, B. (2015) `The effect of board and chairperson independence: an examination of CEO dismissal in Australia', http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Accounting, Auditing and Performance Evaluation Inderscience Publishers

The effect of board and chairperson independence: an examination of CEO dismissal in Australia

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Publisher
Inderscience Publishers
Copyright
Copyright © 2015 Inderscience Enterprises Ltd.
ISSN
1740-8008
eISSN
1740-8016
DOI
10.1504/IJAAPE.2015.068867
Publisher site
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Abstract

The purpose of the paper is to examine the effectiveness of board and chairperson independence as a corporate governance mechanism. We examine 4,637 Australian firms over the period 2004 to 2008. The study presents a multinomial model of CEO dismissal. Our results indicate that independent chairpersons alone are not sufficient to discipline CEOs by dismissal, whereas independent boards are more likely to dismiss a CEO than non-independent boards. We also find that the impact of independent boards becomes more pronounced when independent boards are accompanied by independent chairpersons. The findings imply that board independence and chairperson independence can be powerful corporate governance tools the effects of which are greater if both board and chairperson are independent. These findings support the efforts by the ASX and other regulators to implement independence principles with respect to the disciplining of senior management. This study provides an initial empirical examination of the joint relationship of board and chairperson independence in an Australian context. Keywords: board independence; governance; Australia. chairperson independence; corporate Reference to this paper should be made as follows: Mackay, W., Shan, Y.G. and Howieson, B. (2015) `The effect of board and chairperson independence: an examination of CEO dismissal in Australia',

Journal

International Journal of Accounting, Auditing and Performance Evaluation – Inderscience Publishers

Published: Jan 1, 2015

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