The Role of Technical Expertise in Firm Governance Structure: Evidence from Chief Financial Officer Contractual Incentives

Strategic Management Journal, Forthcoming

27 Pages Posted: 11 Feb 2005 Last revised: 5 May 2010

See all articles by Angela K. Gore

Angela K. Gore

George Washington University - School of Business

P. Eric Yeung

Cornell University - Samuel Curtis Johnson Graduate School of Management

Steven R. Matsunaga

University of Oregon

Date Written: April 30, 2008

Abstract

We provide evidence that the presence of technical expertise in a firm’s governance structure allows the firm to reduce reliance on contractual incentives to control the potential agency problem. Specifically, we find that firms with a board finance committee, or a Chief Executive Officer (CEO) who has a financial background, tend to use lower levels of incentive-based compensation for their Chief Financial Officers (CFOs). Our findings suggest financial experts provide stronger oversight and/or direction with regard to the firm’s financial policies and strategies, thereby allowing firms to reduce reliance on incentive compensation. Our study provides insight into the role of technical expertise and board committees in firm governance, and into the benefits of common functional expertise within top management teams.

Keywords: Corporate Governance, Chief Financial Officer, Compensation, Monitoring, Financial Expertise, Equity Incentives, Finance Committee

JEL Classification: M41, J33, G34

Suggested Citation

Gore, Angela K. and Yeung, P. Eric and Matsunaga, Steven R., The Role of Technical Expertise in Firm Governance Structure: Evidence from Chief Financial Officer Contractual Incentives (April 30, 2008). Strategic Management Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=665286 or http://dx.doi.org/10.2139/ssrn.665286

Angela K. Gore

George Washington University - School of Business ( email )

2201 G St NW
Washington, DC 20052
United States
(202) 994-6195 (Phone)

P. Eric Yeung

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Steven R. Matsunaga (Contact Author)

University of Oregon ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
503-346-3340 (Phone)
503-346-3341 (Fax)

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