Are two heads better than one? The impact of changes in management structure on performance by firm size

We investigate how switching between two alternative management structures affects firms, and how this impact varies with firm size. Under one structure a single executive serves as both chief executive officer (CEO) and chairman of the board (COB). Under the alternative structure two separate executives fill these positions. In order to evaluate which management structure is optimal, we examine the impact of a change in management structure on firm performance. A change from one to two executives induces negative abnormal returns for small firms, but positive abnormal returns for large firms. These impacts are also evident with accounting profitability measures of returns. Our results are consistent with the hypothesis that small firms benefit more from the clarity and decisiveness of decision-making under a single executive, while large firms benefit more from the checks and balances of having two executives in the CEO and COB positions.