CEO Duality and Accounting-Based Performance in Egyptian Listed Companies: A Re-examination of Agency Theory Predictions

According to agency theory, the interests of shareholders are safeguarded only where different people occupying the two positions of the Chief Executive Officer (CEO) and the chairman of the board of directors. This implies that CEO duality (i.e. the CEO serves also as the board chairman) is negatively associated with corporate performance. However, empirical evidence is mixed with respect to this prediction of agency theory. This paper aims at re-examining the predictions of agency theory with regard to the negative association between CEO duality and corporate performance using the financial statements for the year 2006 of most actively traded companies in the Egyptian stock market. It examines the role of other corporate governance mechanisms (board size, top managerial ownership and institutional ownership) as moderating variables in the relationship between CEO duality and corporate performance. Moderated Regression Analysis is used to analyse the empirical data. Our findings indicated that the hypothesized relationship between CEO duality, the moderating variables (top management ownership, board size and institutional ownership) and corporate performance has changed. We found that board size was the only moderating variable (a homologizer variable), top management ownership was a suppressor variable, and institutional ownership was simply another independent variable. For companies characterized by large boards and low top management ownership, corporate performance is negatively affected by CEO duality and positively impacted by institutional ownership.