CEO duality and firm performance during the 2020 coronavirus outbreak

M Kabir Hassan; Reza Houston; M Sydul Karim; Ahmed Sabit

doi:10.1016/j.jeca.2022.e00278

CEO duality and firm performance during the 2020 coronavirus outbreak

J Econ Asymmetries. 2023 Jun:27:e00278. doi: 10.1016/j.jeca.2022.e00278. Epub 2022 Nov 4.

Authors

M Kabir Hassan¹, Reza Houston², M Sydul Karim³, Ahmed Sabit⁴

Affiliations

¹ Department of Economics and Finance, College of Business Administration, University of New Orleans, USA.
² Department of Finance and Insurance, Miller College of Business, Ball State University, USA.
³ Kalamazoo College, Kalamazoo, MI, 49006, USA.
⁴ Department of Biostatistics, Johns Hopkins University, 615 N. Wolfe Street, Baltimore, MD, 21205, USA.

Abstract

Stewardship theory suggests that CEO duality can provide strong leadership and facilitate the development and coordination of firm strategy. These benefits should affect firm risk and financial performance, particularly when the firm has high information-gathering costs. We use the 2020 coronavirus outbreak as a natural experiment to determine whether CEO duality is beneficial during crisis periods. We find that in 2020, S&P 1500 firms with CEO duality exhibit smaller increases in default probability risk than firms with non-duality in the presence of high information costs. Firms with CEO duality experience a smaller decrease in profitability when information costs are high. We also find that firms with CEO duality offer cumulative abnormal returns significantly higher than those of other firms. CEO duality is more valuable in firms with higher information costs. Our results indicate that CEO duality is valuable during crisis periods, particularly when information costs are high. These results are consistent with stewardship theory and indicate that the concentration of power from CEO duality is beneficial during crisis periods.

Keywords: CEO duality; COVID-19; Default probability; Firm performance.