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In the CEO We Trust: Negative Effects of Trust Between the Board and the CEO

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  • Bae, Kee-Hong
  • El Ghoul, Sadok
  • Gong, Zhaoran (Jason)
  • Guedhami, Omrane

Abstract

In this study, we investigate whether and how trust between board members and the CEO (board–CEO trust) affects the performance of mergers and acquisitions. Contrary to conventional wisdom, we find that firms with higher levels of board–CEO trust exhibit poor M&A performance. High trust is associated with low acquisition announcement returns, long-term stock return performance, and post-deal operating performance. This negative effect of board–CEO trust is more pronounced among acquiring companies prone to agency problems. Our results suggest that, in the institutional setting of corporate boards, high trust can be too much of a good thing.

Suggested Citation

  • Bae, Kee-Hong & El Ghoul, Sadok & Gong, Zhaoran (Jason) & Guedhami, Omrane, 2024. "In the CEO We Trust: Negative Effects of Trust Between the Board and the CEO," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 59(6), pages 2899-2932, September.
    • Handle: RePEc:cup:jfinqa:v:59:y:2024:i:6:p:2899-2932_13
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