Number Two Executives: Bottom-up Monitoring

Abstract

This paper empirically examines whether the number two executive in a firm could possibly mitigate the agency problems by monitoring the CEO from bottom up. While the CEO has always been the focus, little work has been done on the number two executive. This study promotes a comprehensive understanding of these top executives and their roles in the bottom-up monitoring mechanism. The results suggest that (1) the bottom-up monitoring provided by number two executives improves firm value; (2) the effect is greater for firms with weaker corporate governance or CEO incentive alignment; (3) the bottom-up monitoring is more important in the post-SOX environment; (4) such monitoring reduces the CEO’s ability to pursue the “quiet life” but has no effect on “empire building.”