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CEO Duality, Information Cost, and Firm

Performance

Shufang Hsu and Wei-Peng Chen *

ABSTRACT

This study aims to examine the relationship between CEO duality and firm performance

by discussing the role of information cost. According to the viewpoints of financial

theories, agency hypothesis argues that CEO duality would damage firm value; however,

stewardship hypothesis indicates that CEO duality is beneficially to firm management.

By analyzing the data of Taiwan listed companies during period from 2000 to 2012, the

empirical results show that the links between leadership style and firm performance are

not evident, but this relationship is associated with the information cost which is

estimated by analysts’ earnings forecasts. More specifically, we find that CEO duality has

statistically significant negative impacts on firm performance with its information cost.

This result provides a coexistence evidence of agency hypothesis and stewardship

hypothesis, and tends to underscore the importance of corporate governance on the

relationship between CEO duality and firm performance.

Keywords: CEO duality; Firm value; Firm performance; Information cost; Analyst

forecast.

* Shufang Hsu is at the Department of Information Management at National Kaohsiung University of

Applied Science, Kaohsiung, Taiwan; Wei-Peng Chen (Corresponding author) is at the Department of Information and Finance Management at National Taipei University of Technology, Taipei, Taiwan. Address for correspondence: Department of Information and Finance Management, National Taipei University of Technology, No. 1, Sec. 3, Zhongxiao E. Rd., Taipei 10608, Taiwan, R.O.C. Tel: +886-2-2771-2171, Ext. 6721; Fax: +886-2-8772-6946; e-mail: wpc@ntut.edu.tw.

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I. Introduction

Chief Executive Officer (CEO) doubling as chairmen of the Board (COB),

generally known as "CEO duality", is quite pervasive in the United States’ corporate

leadership structure. In the early 1990s, more than 80% of American corporations had

duality leadership structure. For two decades, CEO duality become one of the most

widely discussed corporate governance issue, partly because the occurrences of Enron

and WorldCom Inc. scandals, which reflects the possibility that duality can give the

CEO excessive influence over the board; hence compromising the board's ability to

exert proper control over the firm's important policy. Finkelstein and D’Aveni (1994)

referred to the practice of duality leadership as a “double-edged sword” because of the

inherent trade-off between the unities of command associated with duality and the

independent oversight associated with a separate board chair.

The authorities of these two positions are not the same. Chairman’s primary

function is for the responsibility of the organization's policies and monitoring of firm

performance. CEO’s responsibility, however, is in the actual management of operations.

Although there has been growing world-wide pressure exerted by company regulators

and the public at large to separate the title of CEO and Board Chairman, as of 2010,

54% of US corporations still had a CEO duality leadership structure. Theoretically,

there are two primary perspectives dominate the research on duality's performance

effects. Stewardship theory believes that with CEO duality combining the authorities

of those two positions, it can provide clear leadership in a company, thus allowing the

proposition and execution of corporate strategy to be better coordinated, thereby

improving firm performance (Stoeberl and Sherony, 1985; Anderson and Anthony,

1986; Donaldson and Davis, 1991). Dividing authority could create raised information-

transfer costs, resulting in a reduced resilience when impacted (Byrd, Fraser, Lee and

Tartaroglu, 2012; Yang and Zhao, 2014). In contrast, agency theory emphasizes the

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monitoring role of boards, arguing that CEOs have conflicting interests and pursue own

private benefits that depart from stockholder interests of firms (Jenaen and Meckling,

1976). Proponents of agency theory posit that CEO duality may obstruct the original

supervisory function of the board of directors, causing the increase in agency costs of

firms (Fama and Jensen, 1983; Jensen, 1993). As mentioned in Jenaen and Meckling

(1976), boards should be independent from management to limit managerial

entrenchment and opportunism.

The empirical literature investigating duality's impact on firm performance yields

mixed results,1 until now there is no substantial and systematic relationship between

CEO duality and firm performance. Nevertheless, it is worth noting, by using a

contingency approach, Boyd (1995) finds the positive impact of CEO duality on firm

performance in high dynamism, low munificence, and high complexity environments.

Peng, Zhang and Li (2007) find that CEO duality may be especially valuable under

resource scarcity and environmental dynamism. In addition, Duru, Iyengar and

Zampelli (2016) show the negative effect of CEO duality on firm performance is

positively moderated by board independence. Tang (2017) finds that CEO duality has

the negative impact on firm performance when the CEO had dominant powe1r and the

board had a blockholding outside director. Overall, these studies argue that several

environmental and governance factors affect the benefits and costs of CEO duality and

moderate its impact on frim performance.

Notwithstanding the extensive research on the relationship between CEO

duality and firm performance, the majority of empirical studies showed no significant

1 Studies that find negative performance associated with CEO duality are the following: Rechner and Dalton (1991), Pi and Timme (1993). By contrast, literature that had results with positive findings for CEO duality on firm performance, such as Donaldson and Davis (1991). Finally, many empirical studies have indicated that CEO duality and firm performances do not have significant relevance (Rechner and Dalton, 1989; Baliga, Moyer, and Rao, 1996; Elsayed, 2007; Chen et al., 2008; Lam and Lee, 2008; Dalton and Dalton, 2011; 20. Krause, Semadeni, and Cannella, 2014).

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affect. The results do not go along with the general view. The possible reason for the

conflict between the empirical results and general awareness could be that previous

studies did not take into account certain variables. For example, Elsayed (2007)

indicated that the impact of CEO duality on corporate performance is found to vary

across industries. This research posits that the relationship between CEO duality and

firm performance may be affected by other variables.

Upon reviewing related literature on the relationship between CEO duality and

firm performance, agency theory indicates that CEO duality has a negative influence

on information asymmetry.2 For example, Eisenhard's (1989) research show that CEO

duality may increase the information asymmetry between the CEO and the board of

directors. Myers and Majluf (1984) document that outsiders have access to less

information or have a higher cost of acquiring information than insiders. Based on these

arguments, CEO duality may lead to increased information asymmetry between insider

and outsider and it is likely to create a substantial increase in the presence of the agency

problem, thus impacting negatively on firm performance. By contrast, Brickley et al.

(1997) document that CEO duality can effectively eliminates information transferring

and processing cost between the company's managers and internal shareholders.

Additionally, several recent studies (Byrd, Fraser, Lee and Tartaroglu, 2012; Yang and

Zhao, 2014) also indicate that CEO duality can effectively reduce information transfer

costs and raise firm performance. Due to the previously mentioned literature and

arguments are related to information costs, therefore, this study aims to clarify how the

effect of CEO duality on firm performance is affected by information cost.

In this paper, we explore the relationship between leadership style and firm

2 According to agency theory, CEO duality involves an inherent role conflict for the CEO-chair. Chairman serve as CEO enhances the power of the CEO relative to the board, thereby compromising the board’s functions of monitoring and disciplining the CEO.

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performance and test whether information cost servers as a moderating role in Taiwan.

Specifically, we focus on Taiwan market primarily because many Taiwanese

corporations are affiliated with pyramidal or cross-holding structures of controlling

families or groups, resulting in a highly concentrated ownership structure. Information

asymmetry between insider and outsider is relatively serious in this type of ownership

structure, this issue is especially important for the Taiwan market. We therefore use

DaDalt's et al. (2002) method to measure information cost, and use Taiwan’s data to

estimate the relation between performance and leadership style, conditional on

information cost. The purpose of the examination is twofold: (1) to determine whether

CEO duality affect firm performance and (2) to assess how the effect of CEO duality

on firm performance is affected by information cost.

Our main finding is that, in Taiwanese corporations with dual leadership, there is

no significant higher or lower performance than non-duality firms. The result is

consistent with the previous literature. However, when taking into consideration of how

information costs influence firm performance, higher information costs in Taiwanese

companies that have duality leadership are more likely to decrease firm performance

than in non-duality companies. These findings appear whether performance is measured

by ROA, or Tobin’s Q, and for our two information cost measures (ACCUR and

DISPERSE). The estimated magnitudes are nontrivial. All the coefficients on the

interaction term of information cost and duality dummy are negative and different from

zero at high levels of statistical significance. Therefore, the analyses results tend to

support the agency theory argument that CEO duality can reduce firm performance.

Our paper provides several contributions. First, the literature lacks empirical

evidence on the impacts of CEO duality on firm performance with the consideration of

information costs. We use DaDalt's et al. (2002) method to measure information cost,

thereby quantifying their relative importance on the selection of leadership style.

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Second, the debate between CEO duality and non-duality is prevailing in literature and

in practice; however, the literature still lacks clear evidence linking the relation between

leadership style and firm performance, especially in Taiwan that family firm is

relatively prevailing. We provide direct evidence for the influence of information cost

on selection of leadership style in Taiwan. Third, our paper eliminates previous

empirical research that found no significant influence of CEO duality on firm

performance, while taking into account of the conflicting situation with general

predictions. We provide an explanatory viewpoint of the connection between the CEO

duality and firm performance in order to determine the basis by which to judge when

choosing a corporations leadership structure.

The rest of the paper is arranged as follows: Section 2 introduces the research

design, including the reasons behind selecting the research sample and period, the

definition and selection of variables, and research hypothesis design. Section 3

discusses the empirical model and explains how the information cost variables are

constructed in regression model. Section 4 describes the empirical results, including

descriptive statistics, correlation analysis, and panel data regression analysis. The final

section presents the conclusions and recommendations derived from the results of this

study.

II. Research Design

1. Development of Research Hypotheses

Information cost is an important factor that is addressed in the implementation of

corporate governance. Information costs not only influence corporate policy (such as

the selection and use in its derivatives) but also influence a company's cash flow value

(Drobetz et al., 2010). Moreover, Duchin et al. (2010) indicate that information cost

may affect the function of independent director on company’s performance; in addition,

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the existence of information costs can damage firm performance. Therefore,

information cost issue must be addressed and put to test. Due to the close relationship

between information cost and corporate governance and leadership structure is

particularly important in corporate governance. Moreover, Brickley et al. (1997) argue

that the separation of CEO and Chairman of the Board has potential costs. They also

suggest that information transfer cost is relatively high especially for large firms. Taking

the discussion above into consideration, we infer that information may be the primary

explanation for the inconsistency in prior literature about the relationship between CEO

duality and firm performance. Below is an explanation of the two differing viewpoints

that lead to the proposition of the hypotheses of this study.

First, according to agency theory, the duality leadership style could possibly give

CEO too much decision-making power; thereby eliminate the board of director’s

monitoring rights over related firm policies and raise the occurrence of agency

problems. In particular, when a CEO's interest conflicts with stakeholder's interest, the

CEO may choose to violate stakeholders' expectations in order to meet their own

interest (Fama & Jensen, 1983; Jensen, 1993). Therefore, agency conflict happens

between managers and stakeholder, also raise agency cost. In addition, information

costs make it difficult for external shareholders to fully monitor the company’s

operation situation, and this raises the possibility that CEO, as agents of shareholders,

do not always act in the best interest of shareholders. The existence of information costs

would raise the agency costs of a company with a CEO duality leadership structure.

According to this point, this paper believes that, in considering information costs,

companies that have CEO duality leadership structure could possibly lead to decrease

in firm performance.

On the other hand, from the perspective of information transfer cost, CEO is

actually involved in running the company’s operations and thus has special knowledge

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and experience of the company's situation. If they want to transfer that knowledge and

experience to the board of directors, this process may cause higher information transfer

costs (Brickley et al., 1997). The advantage of a chairman functioning as a CEO is that

dual leadership potentially enjoys large cost saving by eliminating information

transferring and processing costs associated with non-CEO chairmen. In addition, it is

also benefit to reduce information asymmetry between the CEO and the board of

directors. This thereby enhances the company's performance. The existence of

information costs raises the expenditures during the transfer process of a CEO's special

knowledge and experiences, thus adding information asymmetry to both sides.

According to this point, in consideration of the information cost, duality leadership

structure can enhance firm performance by reducing the information transferring cost

and decreasing the information asymmetry between managers and the board of

directors.

In general, the literature indicates that there is no correlation between CEO duality

and firm performance, which is clearly inconsistent with the general perception in

practice. This research examines the relationships between CEO duality and firm

performance with the consideration of information cost. The information costs that we

analyze in this research focus on the cost of gathering and distributing information

between manager sand shareholders. And these shareholders includes inside

shareholders and outside shareholders. To carry out a complete analysis, we posit the

following hypothesis:

H1: CEO duality has no influence on firm performance.

H2: In consideration of the information cost, CEO duality has no influence on firm

performance.

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2. Sample Description

The sample of this study consists of all non-financial companies listed on the

Taiwan Stock Exchange (TWSE) in 2000 to 2012. Because there are differences in

regulation between financial industry and non-financial industries, we therefore

exclude research samples that belong to the financial industry. The Data that used in

this paper to compute information costs are collected from the Taiwan Economics

Journal (TEJ) database. It includes raw prediction data totaling 155,181 observations

and raw factual data totaling 20,007 observations. To combine these data we use the

method proposed by DaDalt et al. (2002) and merge the prediction data and factual data

with EPS prediction. After the prediction data and factual data are merged and

organized, the total numbers of research samples are 9,656 firm-year observations..

Firm performance, CEO duality and accounting data are collected from the TEJ finance

database and TEJ governance database. All these data are merged with previous data,

and finally the research sample consists of 8,983 firm-year observations.

3. Variable Measurement

a. Firm performance variables

Based on the related literature (Yang & Zhao, 2014) of relations between CEO

duality and firm performance, this study uses return on asset (ROA) and Tobin's Q as a

measure of corporate performance. Prior studies (e.g., Gill & Mathur, 2011; Iyengar &

Zampelli, 2009; Elsayed, 2007; Brickley et al., 1997; Duchin et al., 2010) use ROA and

Tobin's Q as variables in measuring company performance indicators. ROA is a

common performance indicator in accounting used to measure operations results of

management. Tobin's Q can reflects the company's ability to improve firm performance.

Following the approximation of Tobin’s Q proposed by Chung and Pruitt (1994), this

study calculate Tobin's Q as (MVE + PS + DEBT) / TA, where MVE is the market value

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of equity, PS is the market value of preferred stock, DEBT is the book value of

liabilities, and TA is book value of total assets.

2. Information cost variables

In this study, the measurements of information cost are based on DaDalt's et al.

(2002) and Duchin et al. (2010), who utilize the analyst forecast error (denoted by

ACCUR) and analyst dispersion (denoted as DISPERSE) to measure information

asymmetry. This study therefore uses the two factors of forecast errors and forecast

dispersion as the measures to capture information costs.

The first measure is prediction error. When analysts carry out predictions for a

given company, if the company has relatively high information cost, it makes the

analysts difficult to obtain enough information to carry out predictions and thereby

leading to prediction errors. This paper utilizes DaDalt's et al. (2002) formula for

calculating prediction error, as seen below:

Price

NEPSEPSACCUR

N

iACTi

1

(1)

In Equation 1, EPSi is i analyst's predictive value for EPS in a given year. N is the

total number of predictions for EPS by an analyst within a given year. EPSACT is the

actual EPS of a company in a given year. Price is the annual average share price; in this

study, it is obtained after deriving from a monthly average of 12 months. Taking

absolute value for the numerator because we are concern with the discrepancy between

an analyst's predictive value and actual value, rather than the predictive value is higher

or lower than the actual value. Namely, we use the absolute value of the error instead

of the signed forecast error. The higher the value of ACCUR represents a higher

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information cost. Rises in information cost can lower firm performance. In this paper,

we therefore assume that ACCUR and firm performance should have a negative

correlation.

The second measure is discrete prediction. When analysts carry out a prediction

for a given company, if they lack enough information to assess the prediction, it can

create an increase in the extent of disagreement in analysts’ earnings forecasts for the

company. This paper references methods proposed by DaDalt et al. (2002) to calculate

discrete predictions, as seen below:

Price

NEPSEPSDISPERSE

N

iFORi

1

2

(2)

In Equation 2, ������������ is the average of the analyst earnings forecast made by

analysts in a specific year. We use this measure as a proxy for information asymmetry

by noting that disagreement among analysts can be driven by the lack of available

information about the firm. An increase in DISPERSE indicates disagreement in

analysts' viewpoints. When the information cost increases, and thus leads to a decrease

in firm performance. We therefore assume that DISPERSE and firm performance has a

negative correlation.

3. CEO duality variables

This study uses a dummy variable to express the leadership style of whether the

firm has a CEO duality. If a company's chairman simultaneously serves as CEO of the

company, the dummy variable equals to one. If a company's chairman and CEO is not

the same person, then the dummy variable equals to zero.

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4. Control variables

This study references previous literature to control for time period and industry

effects. Previous studies (Yermack, 1996; Barnhart & Rosenstein, 1998) indicate that

the board size (BS) is an important indicator of firm performance. Moreover, according

to research of Chaganti & Damanpour (1991), institutional ownership (IO) can

influence firm performance. The number of shares directly held by managers in a

company is considered an important characteristic in determining whether their

interests are in line with stockholders' interests. Therefore, management shareholding

(MS) influences firm performance (Barnhart & Rosenstein, 1998). Moreover, according

to relevant research on the effect of CEO duality on firm performance, firm size (FS),

debt ratio (DR), capital intensity (CI), independent director's proportion (ID), and sales

growth rate (GR) can also influence firm performance. These factors should be should

be adequately considered in examining our empirical model. Among these factors, the

board size (BS) is measured as total number of directors on the board, firm size (FS) is

calculated as the logarithm of total assets (base 10) (Gill & Mathur, 2011). Capital

intensity (CI) is the ratio of fixed assets to total assets.

III. Empirical model

In this study, we use panel data to examine our hypothesis. We must first conduct

a likelihood ratio test to determine whether our empirical model can be estimated with

ordinary least squares (OLS) method. If it is not suitable for OLS estimation, we then

use the Hausman test to determine whether fixed effects model or random effects model

would be used in the analysis. Results indicate that the Hausman test was insignificant,

which confirms that the data for this study are appropriate for a random effects model.

The advantages of random effects models over fixed effects model includes greater

precision of the results since it take the heterogeneity into consideration. Therefore,

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GLS estimation of a random effects panel estimators are conducted over the sample

period.

To test our hypotheses, we first specified a model as follows:

FPit (ROAit /Tobinsqit) =α＋β1CEODUALit＋β2BSit＋β3IOit＋β4MSit＋β5FSit

＋β6DRit＋β7CIit＋β8Grit＋β9IDit＋εit (4)

This study use ROA and Tobin's Q as indicators of firm performance and examines

the influence of CEO duality on corporate performance. In Equation (4), we use the

coefficient of CEODUAL to test the hypothesis 1 (H1) of this study. The dependent

variable ROAit (Tobinsqit) on the left side of the equation is the return on asset (values

of Tobin’s Q) of company i in year t. The explanatory variable CEODUALit is the

leadership structure of company i in year t, acts as the dummy variable of CEO duality.

The control variable BSit is the number of board of directors of company i in year t. IOit

is the ratio of total number of shares held by an institution's investors to the total issued

shares of company i in year t. MSit is the ratio of the total number of stocks held by the

company managers to the total issued shares of company i in year t. FSit is the

logarithmic function of the total assets of company i in year t. DRit is the debt ratio of

company i in year t. CIit is the capital intensity of company i in year t. Grit is the sales

growth rate of company i in year t. IDit is the independent director proportion of

company i in year t.

Further, we consider the effect of information cost on relationships between CEO

duality and firm performance, and therefore specified a model as follows:

FPit (ROAit /Tobinsqit) =α＋β1CEODUALit＋β2ACCURit

＋β3CEODUALit×ACCURit ＋β4BSit＋β5IOit

＋β6MSit＋β7FSit＋β8DRit＋β9CIit＋β10Grit＋β11IDit＋εit (5)

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Equation (5) is used to assess the role of information cost in the relations between

leadership style and firm performance; that is, whether it influences the effect of CEO

duality on business performance. In Equation (5), the dependent variables and control

variables are the same as Equation 4. In addition, the explanatory variable of ACCURit

that accounts for the prediction error of analyst’s predictions of EPS for company i in

year t is added. This variable is used to measure the information cost for each company.

The variable CEODUALit×ACCURit is the interaction term of CEO duality and

information cost, and also added in Equation 5 to see whether the performance

deterioration that caused by information costs is larger for firms with duality leadership

than for those with non-duality leadership. That is, in Equation (5), we use the

coefficient of CEODUAL×ACCUR to test the hypothesis 2 (H2) of this study.

In addition, we use another variable DISPERSEit to measure information cost and

investigate the effect of information cost on relationships between CEO duality and

firm performance. The empirical model is specified as follows:

FPit (ROAit /Tobinsqit)＝α＋β1CEODUALit＋β2DISPERSEit

＋β3CEODUALit×DISPERSEit＋β4BSit＋β5IOit

＋β6MSit＋β7FSit＋β8DRit＋β9CIit＋β10Grit＋εit (6)

In Equation (6), the dependent variables and control variables are also the same as

Equation 4. We additionally add the explanatory variable of DISPERSEit that accounts

for the dispersion degree by an analyst’s prediction of EPS for company i in year t. This

variable is also used to measure the information cost for each company. In addition, the

variable CEODUALit×DISPERSEit is the interaction term of CEO duality and

information cost, and also added in this equation to see whether the performance

deterioration that caused by information costs is larger for firms with duality leadership

than for those with non-duality leadership. Namely, in Equation (6), we use the

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coefficient of CEODUALit×DISPERSE to test the hypothesis 2 (H2) of this study.

Ⅳ. Empirical Results

1. Sample

The sample data of this study comes from the TEJ database. Our research sample

includes all publicly traded companies in non-financial industry on Taiwan's stock

exchange from period 2000 to 2012, and covering the 2000-2002 internet bubble and

the 2007-2008 financial crisis events. The data used by this research are unbalanced

panel data that pooling cross-section and time-series data. The benefit of this tracer data

derives from the advantages of the cross-section and time-series data, allowing a

complete analysis of relationships between corporate leadership structure and firm

performance with the consideration of information costs

Table 1 provides key summary statistics for research sample from this study. Panel

A displays companies with a CEO duality leadership structure, and the statistical results

of the number of samples, firm performance, and information cost indicators. It can be

seen that in 2001, 2002, 2008, the annual average prediction error (0.117; 0.104; 0.118),

and annual average discrete prediction (0.082; 0.048; 0.045) are relatively higher than

other years. However, ROA (4.973; 5.169; 4.295) is relatively low. This result reflects

the impacts of internet bubble and financial crisis on firm performance and information

costs. Panel B displays the special characteristics of the non-CEO duality research

sample. As seen in the panel, in the same years of 2001, 2002, and 2008, the annual

average prediction error (0.132; 0.130; 0.106) and annual discrete prediction (0.094;

0.055; 0.042) are relatively higher than in other years. Moreover, the ROA is also lower

relative to other years (3.847; 4.550; 5.089). This phenomenon is similar to the CEO

duality sample, both of which reflect the influences of the internet bubble and the

financial crisis on Taiwanese companies.

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More specifically, from the comparison between Panel A and Panel B, it can be

observed that the number of non-CEO duality companies is much higher than CEO

duality companies in Taiwan. Moreover, in recent years, the number of non-CEO

duality companies relative to CEO duality corporations has expanded from 2 to 3 times.

This change conforms to international trends.

2. Descriptive statistics and correlation analysis

Table 2 shows the descriptive statistics of this research samples. Panel A is the

descriptive statistics results of the whole sample. As the corporate performance

indicators, ROA had an average value of 6.737 and a standard deviation of 8.690;

Tobin's Q had an average value of 1.400 and a standard deviation of 0.888. CEO duality

(CEODUAL) is a dummy variable, and had an average value of 0.283. This represents

an average of 28.3% of firms in the research sample had a CEO duality leadership

structure. In terms of information cost measurements, the prediction error of analyst’s

predictions of EPS (ACCUR) had an average value of 0.069, a minimum value of 0,

and a maximum value of 8.664. The dispersion degree by an analyst’s prediction of

EPS (DISPERSE) average value was 0.039, with a minimum value of 0.00003 and a

maximum value of 4.419.

Panel B and C describe the descriptive statistical results of CEO duality and non-

CEO duality sample. After comparing those two panels, it can be observed that for non-

CEO duality companies, the capital intensity (CI) is relatively higher, firm size (FS) is

relatively larger, debt ratio (DR) is relatively higher, the number of board of directors

(BS) is relatively larger, and the ratio of institutional shareholding percentages (IO) is

relatively higher. Moreover, CEO duality companies have a relatively higher sales

growth rate (GR).

Table 3 further provides descriptive statistical analysis of corporate performance

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that is reported according to the research sample's information cost and leadership

structure indicators. The figure shows that when using ROA as a measure of firm

performance, companies with the highest quartile of prediction error (ACCUR) and a

leadership structure of CEO duality has an average ROA of -1.124. However,

companies with the highest quartile of prediction error (ACCUR) and a leadership

structure of non-CEO duality has an average ROA of -0.759. In addition, companies

with the highest quartile of discrete prediction (DISPERSE) and a leadership structure

of CEO duality, the average of their ROA is 0.696. On the other hand, companies with

the highest quartile of discrete prediction (DISPERSE) and a leadership structure of

non-CEO duality, the average of their ROA is 0.880. The same situation was seen when

using Tobin's Q to measure firm performance. Companies that had the highest quartile

of prediction error (ACCUR) and with a chairperson serving as general manager, the

average of Tobin's Q is 0.991. However, companies that had the highest quartile of

prediction error (ACCUR) and with a leadership structure of non-CEO duality, the

average of Tobin's Q is 1.001. Finally, companies that had the highest quartile of

discrete prediction (DISPERSE) and with a chairperson serving as general manager, the

average of Tobin's Q is 1.042. Additionally, companies that had the highest quartile of

discrete prediction (DISPERSE) and with a leadership structure of non-CEO duality,

the average of Tobin's Q is 1.051.

From the aforementioned results, we observe that when a company's prediction

error and predictive discrete values are relatively high, a company with a leadership

structure of CEO duality has lower firm performance than that of a non-CEO duality

company. This can be explained by the fact that when a company's information costs

are relatively high, it is not conducive to a CEO duality leadership structure. Hence,

this study believes that such relationship worth further investigation with the addition

of control variables.

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Table 4 shows results of the Pearson correlation coefficients. From this table, the

positive and negative relationships of the variables can be observed. First, CEO

duality's dummy variable (CEODUAL), firm performance (ROA), and Tobin's Q have

no correlation. These results demonstrate consistency with domestic and international

findings that lacks clear evidence on the impact of CEO duality on firm performance.

In terms of information cost, the correlation coefficients between prediction error

(ACCUR) and firm performance's ROA and Tobin's Q are -0.363 and -0.137

respectively, showing a significant negative correlation. The correlation coefficients

between the discrete prediction (DISPERSE) and the ROA and Tobin's Q are -0.318

and -0.155, also showing a significant negative relationship. These results show that a

company's information cost and firm performance have an inverse relationship.

Therefore, the result of this analysis is consistent with the literature described above.

They both indicate that a company's information costs and business performance have

an inverse relationship.

Finally, CEO duality (CEODUAL) and a company's capital intensity (CI), debt

ratio (DR), number of the company's board of directors (BS), and institution investors'

shareholding percentages (IO) all show significant negative correlations. Therefore, the

results show that companies with low capital intensity (CI) and a relatively small

corporate scale (FS) are more likely to have a CEO duality leadership structure.

Moreover, companies with a CEO duality leadership structure generally have a lower

debt ratio (DR), and company's board of directors (BS) is usually smaller. In addition,

institutional investors holding shares (IO) in this kind of companies are relatively low.

3. Regression analysis results

3.1. Impact of dual leadership on firm performance

Table 5 shows the regression estimate results of influences in firm performance on

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the changes in leadership style. The performance variable is indicated at the top of each

column. Regressions (1) and Regression (2) do not include information cost variables.

Consistent with the prior literature (Rechner and Dalton, 1989; Baliga, Moyer, and Rao,

1996; Elsayed, 2007; Chen, Lin and Yi, 2008; Lam and Lee, 2008), we do not find a

strong relation between duality and performance. The estimation results in these two

regressions show that the existence of duality leadership seems to have a negative effect

on ROA, and a tiny positive effect on Tobin’s Q, and none of the effects can be

distinguished from zero at conventional levels of statistical significance. The result

indicates an insignificant relation between leadership style and firm performance.

Panel A and Panel B contain our central results. First, in Panel A, information cost

is measured with prediction error (ACCUR). In Regression (3) and (4), we allow the

effect of leadership style to depend on the cost of acquiring information about the firm

by introducing a term that interact the change in leadership style with the information

cost index. Recall that the information cost index is based on the measure of prediction

errors (ACCUR), with high values indicating a high information cost. Two important

findings emerge from these estimations. First, the coefficient on the interaction term is

negative and different from zero at high levels of statistical significance. One

interpretation of this evidence is that information costs make it difficult for external

shareholders to fully monitor the company’s operation situation, and therefore raise the

possibility that CEO, as agents of shareholders, do not always act in the best interest of

shareholders. Hence, in companies that have duality leadership structure, the increase

of information cost lead to decrease in firm performance. This evidence is consistent

with our argument that the effectiveness of CEO duality depends on the cost of

acquiring information about the firm.

Second, the dummy variable estimates reveal that CEO duality has a material

impact of performance for certain firms. In consideration of information cost of duality

20

firm, company that adopting duality leadership outperforms than non-CEO duality firm.

The result is consistent in the presence of both ROA and Tobin’s Q. The result suggests

that CEO duality can effectively eliminate information transferring and processing cost

between the company's managers and internal shareholders, thereby improving firm

performance in dynamism and complexity environment. The argument is consistent

with prior studies of Tang (2017) that supports the effect of CEO duality on firm

performance is moderated by other forces.

In Panel B, information cost is measured with discrete prediction (DISPERSE).

Regression (5) and Regression (6) reveal similar results as that in Regression (3) and

Regression (4). As can be seen, the interaction term is negative for the two performance

measures, and different from zero at the 1% level of significance, indicating that he

basic patterns are not dependent on a specific information cost measure. In addition, the

dummy variable estimates also reveal that CEO duality has material impact of

performance. Namely, in considering of information cost of duality firms, companies

that adopt dual leadership also have higher performances than non-duality companies.

Table 5’s evidence of a consistently large, statistically significant connection

between leadership style and performance stands in contrast to much of the previous

literature. One reason for the difference appears to be the dependence of duality

effectiveness on information cost. CEO duality seems to help performance since it is a

good means of reducing information-transfer costs in high dynamism and complexity

environment. However, CEO duality is also likely to hurt performance because it may

obstruct the original supervisory function of the board of directors, inducing higher

information asymmetry and thereby raise information costs. And the positive and

negative effects cancel out on average. Previous studies have not conditioned on

information cost, and as a result, could only capture the unconditional effects of duality

leadership, which is close to zero.

21

3.2. Other determinants of duality effectiveness

To shed more light on why our empirical results differ from previous research, we

further consider other factors that may be playing key role in duality effectiveness. The

goal is to expand our understanding of when CEO duality is effective, and also to

investigate if the effects we find are spurious, namely, if the information cost variable

is a proxy for some other factor that actually drives the duality-performance relation.

Our information cost variables are intended to capture the cost for duality

leadership to become harmful about the firm, a factor that has been stressed in the recent

theoretical literature. In this section, we allow duality effectiveness to depend on

information cost and other information-related variables. First, the information cost

variables used in Regression (1)-(4) are the same as in Table 5. In Panel A, information

cost is measured with prediction error (ACCUR); and in Panel B, information cost is

measured with discrete prediction (DISPERSE). We allow the effect of CEO duality to

depend on the external shareholder’s cost of acquiring information by introducing a

term that interact the change in leadership style with these information cost indices.

Furthermore, other information-related variables including control variables that we use

in previous section. We also allow the effect of duality leadership to depend on these

information-related variables by introducing terms that interacts the change in

leadership style with these additional variables. Our estimated results are reported in

Table 6.

As can be seen, the analyst-based measure of information cost remains reliably

correlated with duality performance: all interaction terms in Regression (1)-(4) are

negative and significant at the 1% level. Moreover, the dummy variable estimates also

reveal that CEO duality has material impact of performance. The coefficients of dummy

variable in Regression (1)-(4) are positive and significant at the 1% level, indicating

22

that the performance of duality firms outperform non-duality firm with the

consideration of the information costs of duality firms. The results support our argument

that leadership style actually influences firm performance.

For duality firms, the influences of additional variables on performance are similar

with our total research samples. For example, the coefficient of interaction terms of

duality and board size (BS), capital intensity (CI), debt ratio (DR), firm size (FS) are all

negative and different from zero at high levels of statistical significance. Additionally,

the coefficient of interaction terms of CEO duality and sales growth rate (GR),

institutional ownership (IO), management shareholding (MS), independent director's

proportion (ID) are all positive and also different from zero at high levels of statistical

significance. In particularly, the finding of consistent negative effects on information

costs tends to reinforce the message that duality leadership is less effective when it is

difficult for external shareholders to understand the firm’s business. Overall, the

determinants of duality effectiveness appear to be information cost index, including

prediction error (ACCUR) and discrete prediction (DISPERSE), both of which proxy

for the cost of information.

3.3. Impact of dual leadership and information costs on firm performance

It is also possible that our information cost index is absorbing other regulatory

effects stemming from some concurrent regulations. For example, the disclosure

requirement of Taiwan Stock Exchange (TSE) might have had a different effect on low

information cost firms than on high information cost firms. Because the ratio of

companies with duality leadership tended to decrease during our sample period, we

might detect performance differences associated with the change in low and high

information cost firms because TSE‘s disclosure requirements had a difference

performance impact on low and high information cost firms. One problem with this

23

story is that firms with high information cost should show the most improved

performance when required to increase disclosure, creating a spurious effect that runs

in the opposite direction of what we find (that is, biasing our results toward finding that

duality leadership help high information cost firms). Be that as it may, a straightforward

way to control for the possibility that our results incorporate unmeasured regulatory

effects is to introduce the information cost index directly into the equation. The

coefficient on the level of the information cost index will capture any such effects that

are conditional on information costs.

Table 7 reports the regression results. There are the same as the central regression

from Table 5 expect for the inclusion of the information cost index in levels. In

Regression (1)-(4), the results indicate that information cost levels have a negative

effect on both measures of performance, and are different from zero at high levels of

statistical significance. Moreover, the coefficients associated with CEO duality are

robust to inclusion of information cost levels. In particular, the key interaction

coefficient remains negative and statistically significant in every regression, and the

magnitudes of the effects remain nontrivial. The result is consistent with the findings

when information cost levels are not included in the regression. It does not seem that

the information cost variable is capturing unmeasured effects associated with

concurrent regulations. In summary, the results again admit that the effect of the links

between leadership style and performance are not evident, but with the addition of

information cost measures, the performance differences between duality and non-

duality firms become larger for firms with higher information costs.

V. Discussion and Concluding Remarks

After the 1997 Asian Financial Crisis, the issue of corporate governance began

gaining attention. That event was soon followed by the 2001 Enron and the 2003

24

WorldCom Inc. scandals in the US. In Taiwan, there are also the cases of 2004 Boda

and the 2006 Rebar embezzlement. This series of corruption cases reflected the

importance of corporate governance.

With the development of the corporate governance, managerial authority design

has gradually gained more attention. A leadership structure that chairperson serves as

general manager, also called CEO duality, was widely adopted by many American

companies. In the early 1990s, nearly 80% of American companies adopted the CEO

duality leadership structure to conduct business operations. Therefore, the influences of

CEO duality on firm performance become the main subject of research over the past

decade. Moreover, studies did not form an unequivocal conclusion about the impact of

CEO duality on firm performance. In addition, domestically and internationally

empirical analysis almost shows that CEO duality has no significant influence on firm

performance. Interestingly, such results runs against the general view that chairpersons

serving as general manager, playing both the roles of player and the referee. Therefore,

CEO duality is generally believed to reduce firm performance. To eliminate the

contradictions between empirical results and general view, this study empirical

investigates CEO duality's influence on firm performance with the consideration of

information cost.

This paper use Taiwan's listed companies as research sample, and adopt panel data

in a random effects model to analysis the two research issues: 1) the influence of CEO

duality on firm performance and 2) the influence of CEO duality on firm performance

in consideration of information cost. The literature review above showed that when

assessing CEO duality's influence on firm performance, there was no consideration of

information cost. This study references DaDalt et al. (2002) method for measuring

information costs through the analysts' prediction error (ACCUR) and predicted

dispersion (DISPERSE) and uses these measures as the indicators in considering

25

information costs. Our main findings is that duality leadership do appear to have a

material effect on performance, but the direction of the effect depends on how costly it

is for those external shareholders to become informed about the firm. Consistent with

our anticipation, we find that duality leadership is associated with significantly better

performance when external shareholder’s cost of acquiring information is low, and is

associated with significantly worse performance when external shareholder’s cost of

acquiring information is high. These findings suggest that the failure of previous studies

to find an effect of CEO duality on performance may have been because they failed to

distinguish low and high information cost environments. That is, it is important to ask

not whether but when are CEO duality effective? Our emphasis on the conditional

effectiveness of duality leadership, and our attempt to drill down into the functions of

duality, is consistent with an evolution into the literature away from the view that

duality is always better, and toward a more textured view that appreciates the strength

and weaknesses of duality leadership, depending on the firm’s environment (e.g., see

Tang, 2017). These analysis results provide a different perspective on the relationship

between CEO duality and firm performance. Moreover, it has eliminated the conflicts

between previous empirical evidence and general views.

Taiwan's company law now does not stipulate that a company's chairman cannot

serve as a CEO. Based on the results of the analysis from this study, it is recommended

that listed companies, when determining their leadership structure, they should follow

Article 23 of Corporate Governance Best Practice Principles for TWSE Listed

Companies promulgated in 2002, which reads in part: "Clear distinctions shall be drawn

between the responsibilities and duties of the chairman of the board of a listed company

and those of its CEO. It is inappropriate for the chairperson to also act as the general

manager."

26

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30

Table 1 Research sampling distribution

Panel A: CEO duality firms Panel B: Non-CEO duality firms

Year N ROA (%) Tobin’s Q ACCUR DISPERSE N ROA (%) Tobin’s Q ACCUR DISPERSE

2000 196 6.041 1.070 0.075 0.043 441 5.561 1.027 0.063 0.044

2001 230 4.973 1.232 0.117 0.082 525 3.847 1.199 0.132 0.094

2002 270 5.169 1.207 0.104 0.048 566 4.550 1.174 0.130 0.055

2003 239 7.426 1.479 0.050 0.027 506 6.620 1.388 0.044 0.025

2004 231 7.451 1.265 0.070 0.027 530 7.878 1.262 0.060 0.025

2005 196 6.998 1.479 0.070 0.032 509 7.618 1.460 0.061 0.031

2006 203 8.376 1.683 0.061 0.031 534 9.021 1.732 0.048 0.026

2007 196 9.239 1.662 0.037 0.021 539 9.376 1.653 0.035 0.021

2008 167 4.295 1.029 0.118 0.045 484 5.089 1.043 0.106 0.042

2009 156 5.572 1.749 0.056 0.039 449 6.200 1.825 0.058 0.045

2010 177 8.498 1.653 0.030 0.020 519 8.517 1.654 0.035 0.025

2011 159 7.313 1.313 0.056 0.033 461 6.385 1.297 0.057 0.035

2012 122 6.358 1.442 0.053 0.029 378 6.499 1.530 0.047 0.032

Note: Prediction error is the EPS prediction error for a company by an analyst, or ACCUR in this study. Discrete prediction is the EPS discrete prediction error for a company, or

DISPERSE in this study. ROA, Tobin's Q, prediction error, discrete prediction are the average of the annual samples.

31

Table 2 Summary statistics

Panel A: All firm-years, 2000-2012 Panel B: CEO duality firms Panel C: Non-CEO duality firms

Variables N Mean Std. Dev. Median Minimum Maximum N Mean Std. Dev. Median Minimum Maximum N Mean Std. Dev. Median Minimum Maximum

ROA (%) 8,983 6.737 8.690 6.160 -58.430 75.610 2,542 6.739 8.784 6.380 -49.840 75.610 6,441 6.736 8.653 6.120 -58.430 51.090

Tobin’s Q 8,983 1.400 0.888 1.159 0.021 12.747 2,542 1.394 0.826 1.165 0.021 11.950 6,441 1.403 0.911 1.155 0.058 12.750

Duality 8,983 0.283 0.450 0 0 1 - - - - - - - - - - - -

ACCUR 8,818 0.069 0.200 0.029 0 8.664 2,485 0.070 0.162 0.031 0 5.151 6,333 0.068 0.213 0.028 0 8.664

DISPERSE 7,567 0.039 0.084 0.021 0.00003 4.149 2,128 0.038 0.058 0.022 0.00003 0.880 5,439 0.039 0.093 0.021 0.0001 4.149

CI 8,983 0.311 0.187 0.292 0.00004 0.958 2,542 0.295 0.181 0.271 0.00004 0.952 6,441 0.317 0.189 0.302 0.0002 0.958

FS 8,983 6.772 0.615 6.686 5.193 9.311 2,542 6.661 0.573 6.604 5.386 9.311 6,441 6.816 0.626 6.737 5.193 8.852

DR 8,983 42.442 16.369 43.270 1.860 98.540 2,542 41.650 15.930 41.980 1.860 97.620 6,441 42.760 16.530 43.810 2.070 98.540

MS 8,968 1.864 2.863 0.690 0 33.290 2,542 1.870 2.744 0.700 0 25.490 6,426 1.862 2.909 0.685 0 33.290

BS 8,968 7.056 2.476 7 2 27 2,542 6.450 1.937 6 3 20 6,426 7.296 2.621 7 2 27

IO (%) 8,708 38.180 22.319 35.400 0 100 2,460 33.230 20.700 30.200 0 100 6,248 40.130 22.630 37.800 0 99.99

GR 8,978 21.172 296.72 10.125 -121.270 25004 2,542 32.230 551.410 10.460 -121.300 25004 6,436 16.810 51.880 9.970 -89.330 1402

ID (%) 8,955 12.892 16.285 0 0 75 2,532 13.010 16.670 0 0 60 6,423 12.850 16.130 0 0 75

Note: ROA is the company's return on assets; Tobin's Q is the company's Tobin's Q value; ACCUR_EPS is the analysts prediction error of a company's EPS; DISPERSE_EPS is the analyst's discrete

prediction of a company's EPS; CEODUAL represents whether or not a company's leadership structure is CEO duality; CI is a company's capital intensity; FS is a firm size; DR is a company's debt ratio; MS is a company manager's shareholding percentages in the company; BS is the number of people on the company's board of directors; IO is the shareholding percentages of the institutions investors; GR is the company's sales growth rate; and ID is the independent director proportion. This study seeks to retain data integrity, and so it did not remove outliers or extreme values. In terms of debt ratio, the maximum value of 98.54% derived from Taiwan Land Development Corporation (2841). The reason for this could be the special characteristics of the construction industry. For example, the debt ratio of Long Bon International Co. (2514) and Howarm (5505) reached 95.75%. Institutional ownership's maximum value of 100 derived from Tangeng (2035) in 2006, which is the year the company became publicly listed, going from a state-owned enterprise to a private enterprise. The sales growth rate had a maximum value of 25004%, which derived from Micro Crystal (6116) in 2000. This was verified with the company, as their revenue was 250 times greater than in 1999.

32

Table 3 Descriptive statistics according to leadership structure and information cost

categorized

Firm

Performance

Leadership

Structure

Quantile of Information Cost

< 25% 25-50% 50-75% > 75%

Panel A: Information cost (IC) measured by accuracy of analyst forecasts (ACCUR)

Number of Firms (Duality / Non-duality) 576 / 1,629 602 / 1,602 656 / 1,549 651 / 1,553

ROA Corr(Duality, ROA) 0.005 0.050** 0.024 -0.019

CEO duality 11.609 10.078 6.781 -1.124

Non-CEO duality 11.519 9.346 6.489 -0.759

Difference 0.090 0.732** 0.292 -0.365

Tobin’s Q Corr(Duality, Tobin’s Q) 0.003 0.012 0.050** -0.013

CEO duality 1.889 1.552 1.295 0.991

Non-CEO duality 1.881 1.529 1.236 1.001

Difference 0.008 0.023 0.059** -0.010

Panel B: Information cost (IC) measured by dispersion of analyst forecasts (DISPERSE)

Number of Firms (Duality / Non-duality) 501 / 1,391 540 / 1,352 540 / 1,352 547 / 1,344

ROA Corr(Duality, ROA) -0.002 0.048** -0.008 -0.010

CEO duality 10.818 10.427 6.681 0.696

Non-CEO duality 10.865 9.639 6.796 0.880

Difference -0.047 0.788** -0.115 -0.184

Tobin’s Q Corr(Duality, Tobin’s Q) -0.017 0.045** -0.003 -0.009

CEO duality 1.845 1.655 1.295 1.042

Non-CEO duality 1.893 1.567 1.299 1.051

Difference -0.048 0.088** -0.004 -0.009

Note: The figures in this table are the average of firm performance. Information cost range was sorted based on the

value of the information cost in the sample. In this paper, it is divided in <25%, 25-50%, 50-75%, and >75%.

33

Table 4 Summary of Pearson’s correlation

Note: ROA is the company's return on assets; Tobin's Q is the company's Tobin's Q value; ACCUR is the analysts prediction error of a company's EPS; DISPERSE is the analyst's discrete prediction of a

company's EPS; CEODUAL represents whether or not a company's leadership structure is CEO duality; CI is a company's capital intensity; FS is a firm size; DR is a company's debt ratio; MS is a company manager's shareholding percentages in the company; BS is the number of people on the company's board of directors; IO is the shareholding percentages of the institutions investors; GR is the company's sales growth rate; and ID is the independent director proportion. * represents a significance level that reaches 0.05; ** represents a significance level reaching 0.01; *** represents a significance level of 0.001.

ROA Tobin’s Q Duality ACCUR DISPERSE CI FS DR MS BS IO GR ID

ROA 1

Tobin’s Q 0.545*** 1

Duality 0.0001 -0.004 1

ACCUR -0.363*** -0.137*** 0.006 1

DISPERSE -0.318*** -0.155*** -0.005 0.642*** 1

CI -0.202*** -0.197*** -0.053*** 0.046*** 0.060*** 1

FS -0.084*** -0.095*** -0.113*** -0.019 0.020 0.145*** 1

DR -0.337*** -0.285*** -0.030** 0.199*** 0.184*** 0.047*** 0.319*** 1

MS 0.172*** 0.122*** 0.001 -0.052*** -0.068*** -0.196*** -0.245*** -0.095*** 1

BS -0.054*** -0.052*** -0.154*** -0.048*** -0.037*** 0.127*** 0.329*** 0.004 -0.069*** 1

IO 0.152*** 0.118*** -0.139*** -0.082*** -0.059*** 0.044*** 0.438*** 0.029** -0.223*** 0.227*** 1

GR 0.033** 0.004 0.023* -0.076*** -0.085*** 0.014 0.017 0.012 0.001 0.008 0.030** 1

ID 0.218*** 0.244*** 0.004 -0.068*** -0.101*** -0.160*** -0.181*** -0.120*** 0.124*** -0.072*** 0.020 -0.004 1

34

Table 5: Regression analysis of firm performance on CEO duality and information cost

Panel A: Information cost

(IC) measured by accuracy

of analyst forecasts

(ACCUR)

Panel B: Information cost

(IC) measured by

dispersion of analyst

forecasts (DISPERSE)

ROA Tobin’s Q ROA Tobin’s Q ROA Tobin’s Q

Variables (1) (2) (3) (4) (5) (6)

Duality -0.040 0.007 1.027*** 0.030*** 1.126*** 0.045***

(-0.218) (0.689) (5.526) (2.846) (5.305) (3.849)

Duality × IC -16.113*** -0.286*** -32.199*** -1.031***

(-17.806) (-5.481) -(11.756) -(6.897)

BS -0.232*** -0.010*** -0.218*** -0.011*** -0.197*** -0.010***

(-6.631) (-4.870) (-6.461) (-5.653) -(5.616) -(5.192)

CI -6.594*** -0.355*** -5.846*** -0.335*** -6.235*** -0.337***

(-14.726) (-13.494) (-13.532) (-13.448) -(13.544) -(13.437)

DR -0.170*** -0.006*** -0.165*** -0.006*** -0.179*** -0.006***

(-32.266) (-17.782) (-32.018) (-19.798) -(32.443) -(20.736)

FS 0.442*** 0.002 0.284* -0.028*** -0.012 -0.067***

(2.589) (0.235) (1.734) (-2.936) -(0.069) -(6.931)

GR 0.005*** 0.000 0.031*** 0.001*** 0.039*** 0.001***

(8.063) (0.836) (21.897) (9.254) (22.651) (12.138)

IO 0.078*** 0.004*** 0.074*** 0.004*** 0.076*** 0.005***

(18.754) (14.811) (18.619) (16.820) (17.753) (19.409)

MS 0.438*** 0.010*** 0.407*** 0.014*** 0.433*** 0.020***

(14.515) (5.671) (13.759) (8.135) (13.537) (11.257)

ID 0.069*** 0.004*** 0.064*** 0.004*** 0.059*** 0.004***

(12.587) (13.471) (12.434) (12.023) (10.160) (12.394)

Intercept 9.932*** 0.392*** 10.235*** 0.613*** 13.077*** 0.878***

(9.423) (6.031) (10.172) (9.830) (11.476) (12.263)

Adj. R2 0.228 0.123 0.293 0.164 0.308 0.230

N 8,690 8,690 8,556 8,556 7,313 7,313

Note: ROA is the company's return on assets; Tobin's Q is the company's Tobin's Q value; ACCUR is the analysts

prediction error of a company's EPS; DISPERSE is the analyst's discrete prediction of a company's EPS; CEODUAL represents whether or not a company's leadership structure is CEO duality; CI is a company's capital intensity; FS is a firm size; DR is a company's debt ratio; MS is a company manager's shareholding percentages in the company; BS is the number of people on the company's board of directors; IO is the shareholding percentages of the institutions investors; GR is the company's sales growth rate; and ID is the independent director proportion. * represents a significance level that reaches 0.05; ** represents a significance level reaching 0.01; *** represents a significance level of 0.001.

35

Table 6 Regression analysis of firm performance with other information-related

variables

Panel A: Information cost (IC)

measured by accuracy of analyst

forecasts (ACCUR)

Panel B: Information cost (IC)

measured by dispersion of analyst

forecasts (DISPERSE)

ROA Tobin’s Q ROA Tobin’s Q

Variables (1) (2) (3) (4)

Duality 8.237*** 0.878*** 9.653*** 1.100***

(3.861) (7.499) (4.244) (9.134)

Duality × IC -16.561*** -0.313*** -29.460*** -0.984***

(-15.613) (-5.389) (-8.958) (-5.663)

Duality × BS -0.279*** -0.018*** -0.234** -0.016***

(-3.126) (-3.703) (-2.469) (-3.213)

Duality × CI -3.794*** -0.310*** -3.184*** -0.305***

(-4.021) (-6.006) (-3.112) (-5.639)

Duality × DR -0.148*** -0.005*** -0.179*** -0.005***

(-12.737) (-8.158) (-14.228) (-8.034)

Duality × FS -0.338 -0.091*** -0.464 -0.124***

(-0.951) (-4.681) (-1.223) (-6.183)

Duality × GR 0.024*** 0.001*** 0.056*** 0.002***

(8.740) (4.183) (12.346) (6.634)

Duality × IO 0.066*** 0.004*** 0.064*** 0.004***

(7.561) (7.803) (6.765) (7.269)

Duality × MS 0.548*** 0.019*** 0.488*** 0.016***

(8.499) (5.332) (7.176) (4.428)

Duality × ID 0.044*** 0.002*** 0.038*** 0.002***

(4.276) (3.275) (3.339) (3.216)

Intercept 6.744*** 0.223*** 7.171*** 0.258***

(39.887) (14.717) (32.542) (9.069)

Adj. R2 0.101 0.047 0.101 0.063

N 8,556 8,556 7,313 7,313

Note: ROA is the company's return on assets; Tobin's Q is the company's Tobin's Q value; ACCUR is the analysts

prediction error of a company's EPS; DISPERSE is the analyst's discrete prediction of a company's EPS; CEODUAL represents whether or not a company's leadership structure is CEO duality; CI is a company's capital intensity; FS is a firm size; DR is a company's debt ratio; MS is a company manager's shareholding percentages in the company; BS is the number of people on the company's board of directors; IO is the shareholding percentages of the institutions investors; GR is the company's sales growth rate; and ID is the independent director proportion. * represents a significance level that reaches 0.05; ** represents a significance level reaching 0.01; *** represents a significance level of 0.001.

36

Table 7 Regression analysis of firm performance on CEO duality and information cost

Panel A: Information cost (IC)

measured by accuracy of analyst

forecasts (ACCUR)

Panel B: Information cost (IC)

measured by dispersion of analyst

forecasts (DISPERSE)

ROA Tobin’s Q ROA Tobin’s Q

Variables (1) (2) (3) (4)

Duality 0.389** 0.022** 0.513** 0.031***

(2.131) (2.024) (2.421) (2.633)

IC -9.801*** -0.130*** -17.738*** -0.396***

(-23.353) (-5.188) (-16.496) (-6.645)

Duality × IC -7.251*** -0.166*** -16.703*** -0.685***

(-7.544) (-2.912) (-5.862) (-4.341)

BS -0.232*** -0.011*** -0.215*** -0.010***

(-7.064) (-5.733) (-6.237) (-5.414)

CI -5.671*** -0.332*** -6.105*** -0.334***

(-13.535) (-13.325) (-13.502) (-13.354)

DR -0.145*** -0.006*** -0.168*** -0.006***

(-28.705) (-18.681) (-30.682) (-19.783)

FS 0.099 -0.031*** 0.039 -0.066***

(0.633) (-3.186) (0.224) (-6.834)

GR 0.030*** 0.001*** 0.038*** 0.001***

(22.023) (8.996) (22.421) (11.910)

IO 0.069*** 0.004*** 0.072*** 0.004***

(17.806) (16.540) (17.116) (19.061)

MS 0.388*** 0.014*** 0.413*** 0.019***

(13.513) (7.977) (13.152) (11.033)

ID 0.062*** 0.004*** 0.059*** 0.004***

(12.984) (11.872) (10.372) (12.430)

Intercept 11.656*** 0.631*** 13.214*** 0.881***

(12.168) (9.609) (11.897) (11.883)

Adj. R2 0.341 0.166 0.333 0.234

N 8,556 8,556 7,313 7,313

Note: ROA is the company's return on assets; Tobin's Q is the company's Tobin's Q value; ACCUR is the analysts

prediction error of a company's EPS; DISPERSE is the analyst's discrete prediction of a company's EPS; CEODUAL represents whether or not a company's leadership structure is CEO duality; CI is a company's capital intensity; FS is a firm size; DR is a company's debt ratio; MS is a company manager's shareholding percentages in the company; BS is the number of people on the company's board of directors; IO is the shareholding percentages of the institutions investors; GR is the company's sales growth rate; and ID is the independent director proportion. * represents a significance level that reaches 0.05; ** represents a significance level reaching 0.01; *** represents a significance level of 0.001.