The Relationship between CEO Duality and Firm Performance : An Analysis Using Panel Data Approach

This paper seeks to examine the relationship between the CEO duality (one person serving the role of both chairman of the board and CEO) and firm performance. Existing literature on CEO duality is based on two theories of corporate governance. While agency theory suggests that CEO duality negatively affects performance, stewardship theory favors CEO duality and argues that it positively impacts the firm performance. The present paper adds to the existing literature by employing panel data of 145 non-financial companies listed on National Stock Exchange of India for a period of five years, i.e., 2008-2012. Firm performance has been measured using Tobin's Q as a market-based measure, and Return on Equity (ROE) as accounting-based measure. Panel data is analyzed using fixed effect within and Least Square Dummy Variable (LSDV) model, random effect model and Feasible Generalized Least Square (FGLS) model. The paper concludes that when Tobin's Q is used as performance measure, the presence of CEO duality has a negative impact on firm performance. In case of ROE, the relationship is negative with fixed effect model and significantly negative with FGLS model