Monitoring Managers: Does It Matter?





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    • Cornelli is at London Business School and CEPR, Kominek is at the European Bank of Reconstruction and Development (EBRD), and Ljungqvist is at New York University Stern School of Business and NBER. The views expressed in this paper are those of the authors and not necessarily of the EBRD. We are grateful to the staff of the EBRD for advice and help with the data, in particular to Erik Berglöf, Gian Piero Cigna, Simon Commander, Henry Potter, and Hans Peter Lankes as well as to members of their respective departments. Thanks for helpful discussions go to Renée Adams, Huasheng Gao, Simon Gervais, Radhu Gopalan, Simon Johnson, Fausto Panunzi, Daniel Paravisini, Antoine Renucci, Geoff Tate, and Alexander Vedrashko. We also thank Cam Harvey (the Editor), two anonymous reviewers, Ashwini Agrawal, Giacinta Cestone, Theo Dimopoulos, William Greene, Denis Gromb, Christopher Hennessy, William Janeway, Dirk Jenter, Marco Manacorda, Holger Mueller, Philipp Schnabl, and Tarun Ramadorai, as well as to audiences at various seminars and conferences. Nelson Costa-Nato provided excellent research assistance and Katrin Robeck provided invaluable help assembling the data while interning at the EBRD. Ljungqvist thanks the Ewing Marion Kauffman Foundation for generous financial support and Cornelli thanks London Business School for a RAMD Research Grant. Part of the research was conducted while Cornelli visited the Einaudi Institute in Rome, whose hospitality is gratefully acknowledged.


We study how well-incentivized boards monitor CEOs and whether monitoring improves performance. Using unique, detailed data on boards' information sets and decisions for a large sample of private equity–backed firms, we find that gathering information helps boards learn about CEO ability. “Soft” information plays a much larger role than hard data, such as the performance metrics that prior literature focuses on, and helps avoid firing a CEO for bad luck or in response to adverse external shocks. We show that governance reforms increase the effectiveness of board monitoring and establish a causal link between forced CEO turnover and performance improvements.