CEO Duality and Firm Profitability. Evidence from Emerging Europe

The aim of this paper is to analyze the effects of corporate governance characteristic, CEO duality, on firm profitability using as measures of profitability return on assets ratio (ROA) and return on equity ratio (ROE). Our sample is composed of listed companies from Central and Eastern European countries for a ten-year period, from 2004 to 2013. The financial data for companies was retrieved from Orbis database and the corporate governance characteristic, CEO duality variable, was hand-collected from the Annual Reports of the companies in our sample. For a panel data of Central and Eastern European listed companies, we employed OLS regression to estimate the relationship between CEO duality and firm profitability. Our results off er evidence that CEO duality has e negative and statistically significant sign on both measures of firm profitability (ROA and ROE). Our results are robust and consisting with agency theorists in that that CEO duality inhibits the transfer of information between management and administrative and produces conflict of interests and management opportunism leading to reduced profitability. Furthermore, we provide empirical evidence regarding the corporate governance practices in transition countries, especially regarding the separation of power between management and administrative, and deliver proposals for better corporate governance practices.