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1. Introduction
The separation of ownership and control that characterizes the modern corporation creates conflicts of interest between managers and shareholders. The board of directors headed by its chair is charged with resolving such conflicts and ensuring that management decisions enhance shareholder welfare. With a diffused base, shareholders cannot possibly oversee managers (Krause and Semadeni, 2013). Boards of directors are elected to represent owners, and, in this capacity, the board has a strict and absolute fiduciary duty to ensure that the firm is managed in the best interests of shareholders. The board, therefore, is a crucial part of the corporate structure and corporate governance.
Many researchers argue that the same person should not hold the offices of chief executive officer (CEO) and chairman simultaneously, because this may reduce the effectiveness of the board’s monitoring ability as the agent of shareholders (Pi and Timme, 1993; Baliga et al., 1996; Chen and Kao, 2004; Henry et al., 2005; Boyd et al., 2005; Cheng and Courtenay, 2006; Chtourou et al., 2008; Chang and Sun, 2009; Bliss, 2011; Yasser et al., 2014). Furthermore, boards under CEO dominance will tend to operate ceremonially, communicate poorly and “rubber-stamp” management decisions (Worrell et al., 1997; Charan, 2005; Elsayed, 2007). According to the agency theory, a unitary leadership structure has a negative implication for a firm’s values and long-term sustainability (Rechner and Dalton, 1991; Mallette and Fowler, 1992; Meca and Ballesta, 2009; Boivie et al., 2011). However, stewardship theorists argue that one person in dual positions may improve a firm’s performance, because such a structure removes any internal and external ambiguity concerning responsibility for stable processes and upshots (Dulewicz and Herbert, 2004). There are indications in the literature in support of the stewardship theory (Finkelstein and D’Aveni, 1994; Ramdani and Witteloostuijn, 2010) and the agency theory (Claessens et al., 2000; Sarkar et al., 2008), along with a body of research that found no impact on board leadership structure on a firm’s performance and financial reporting quality (Dalton et al., 1998; Abdelsalam and Street, 2007; Cerbioni and Parbonetti, 2007; Huafang and Jianguo, 2007; Bhagat and Black, 2008; Ramdani and Witteloostuijn, 2010).
Our evidence indicates that board leadership structure is not associated with a firm’s...