Journal of Banking & Finance 49 (2014) 534–552

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Journal of Banking & Finance

journal homepage: www.elsevier.com/locate/jbf

CEO duality and firm performance: Evidence from an exogenous shock

to the competitive environment
Tina Yang a,⇑, Shan Zhao b,1
a
School of Business, Villanova University, 800 Lancaster Ave., Villanova, PA 19085, USA
b
Grenoble Ecole de Management, 12, rue Pierre Semard, 38000 Grenoble, France

a r t i c l e i n f o a b s t r a c t

Article history: Regulators and governance activists are pressuring firms to abolish CEO duality (the Chief Executive Offi-
Received 12 July 2013 cer is also the Chairman of the Board). However, the literature provides mixed evidence on the relation
Accepted 9 April 2014 between CEO duality and firm performance. Using the exogenous shock of the 1989 Canada–United
Available online 24 April 2014
States Free Trade Agreement, we find that duality firms outperform non-duality firms by 3–4% when their
competitive environments change. Further, the performance difference is larger for firms with higher
JEL classification: information costs and better corporate governance. Our results underscore the benefits of CEO duality
G34
in saving information costs and making speedy decisions.
G38
K22
Ó 2014 Elsevier B.V. All rights reserved.

Keywords:
CEO duality
Firm performance
Corporate governance
Endogeneity
Competitive environments

1. Introduction
This paper studies the effect of CEO duality on firm performance
using an exogenous shock to the competitive environment. (CEO
duality refers to a board leadership structure in which the Chief
Executive Officer (CEO) is the Chairman of the Board (COB).) The
exogenous shock is the 1989 Canada–United States Free Trade
Agreement (FTA), which eliminated all tariffs and other trade barri-
ers between the two countries. Three drivers motivate our research
question: the recent regulatory push to abolish CEO duality, the
growing trend of U.S. firms separating the CEO and COB titles, and
the ambiguity in the literature about whether CEO duality is bene-
ficial or detrimental to firm performance. More specifically, firms
that received assistance under the 2008 Troubled Asset Relief Pro-
gram (TARP) were required to separate the CEO and COB titles.
The U.S. Congress introduced several proposals in 2009 that called
⇑ Corresponding author. Address: Finance Department, Villanova University, 800
Lancaster Ave., Villanova, PA 19085, USA. Tel.: +1 (610) 519 5460: fax: +1 (610) 519
6881.
E-mail addresses: tianxia.yang@villanova.edu (T. Yang), shan.zhao@grenoble
-em.com (S. Zhao).
1
Tel.: +33 4 56 80 66 03; fax: +33 4 76 70 60 99.
for the titles to be split. The 2010 Dodd–Frank Act required the
Securities and Exchange Commission (SEC) to issue rules mandat-
ing that listed firms disclose the reasoning behind their board
leadership structures. Under pressure, U.S. firms appear to have
modified their decisions regarding CEO duality. As Fig. 1 shows,
from the 1970s until the early 1990s, over 80% of large U.S. firms
had combined titles. The figure fell to 54% in 2010.
The above trends are unsettling given the lack of clear theoret-
ical predictions and mixed empirical evidence on the performance
impact of CEO duality. The main argument against CEO duality (or
dual leadership) is based on agency theory, which predicts that
CEOs, as agents of shareholders, do not always act in the best inter-
ests of shareholders. As the board of directors is the apex of the
decision control system of corporations, entrusting CEOs with the
office of COB exemplifies the ultimate conflict of interest. The main
argument in favor of dual leadership emphasizes the unparalleled
firm-specific information of CEOs and firms’ ability to quickly
respond to changing environments due to unified leadership
(Brickley et al., 1997; Larcker and Tayan, 2011). A large body of
literature has developed over the years in an attempt to resolve
empirically the debate over the efficacy of CEO duality. However,
the evidence produced so far is mixed due to endogeneity
challenges (Hermalin and Weisbach, 2003; Adams et al., 2010).

http://dx.doi.org/10.1016/j.jbankfin.2014.04.008
0378-4266/Ó 2014 Elsevier B.V. All rights reserved.
 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552
Fig. 1. Time trend of the percent of firms with dual leadership (i.e., the Chief
Executive Officer (CEO) is the Chairman of the Board of Directors (COB)). We obtain
the percentage for the period of 1978–1983 from Rechner and Dalton (1991), who
compile the percentage based on 141 U.S. firms randomly selected from the Fortune
500 list. The percentage for the period of 1984–1991 comes from Yermack (1996),
who compiles the percentage using 792 firms in Forbes magazine’s rankings of the
500 largest U.S. public corporations. The percentage of 1993 comes from Dahya and
Travlos (2000), who obtain the percentage from Business Week International. The
percentage of 1995 comes from Faleye (2007b), who compiles the percentage based
on 1883 U.S. firms that filed proxy statements with the SEC in 1995 and met the
data requirement in his study. We compile the percentage for the period of 1996–
2010 using all firms in RiskMetric, which covers S&P1500 firms. The percentage of
1992 is the average of the percentages in 1991 and 1993. The percentage of 1994 is
the average of the percentages in 1993 and 1995.
We add to the literature by analyzing the impact of CEO duality
on firm performance using a new framework that mitigates the
endogeneity problem. By using an exogenous shock to the compet-
itive environment and relating post-shock firm performance to the
pre-shock board leadership structure, our research design miti-
gates the endogeneity problem caused by reverse causality,
namely whether certain board leadership structures enhance firm
performance or whether better performing firms tend to adopt
certain board leadership structures. Further, our research design
mitigates unobserved heterogeneity that potentially drives firms’
choices of board leadership structures by exploiting performance
differences across duality and non-duality firms under different
tariff rates.2
Our research design offers two additional benefits. First,
although we study a conditional effect (i.e., the impact of dual lead-
ership on firm performance when the competitive environment
changes), our results have broad implications because this condi-
tion should hold true for most firms as globalization and technol-
ogy advance. Second, the research design facilitates a direct test
of the main benefit of CEO duality. Dual leadership incurs lower
information acquisition, transmission, and processing costs than
separate leadership, because CEOs accumulate unparalleled
firm-specific information through running the daily operation of
the firm (Jensen and Meckling, 1995; Brickley et al., 1997). An
exogenous shock that increases competition and brings about
new market opportunities magnifies the information benefits of
CEO duality for two reasons. First, competition and new market
opportunities increase the value of information, especially the
value of specific information, because information generates
market power and specific information is more costly to acquire
2 of dual leadership are well developed, the literature lacks empirical
Notably, Dahya et al. (2009) and Byrd et al. (2012) also utilize exogenous shocks
to mitigate endogeneity concerns in their study of the efficacy CEO duality.
Specifically, Dahya et al. (2009) use the event of the issuance of the Cadbury Report
in 1992, while Byrd et al. (2012) use the thrift crisis of the late 1980s. Our study defers
from these studies in two key aspects. First, we focus on a broad sample of U.S. non-
financial firms. Second, by exploring the differential tariff rates between duality and
non-duality firms, we can more effectively address the problem of unobserved
heterogeneities that potentially drive the relation between CEO duality and firm
performance.
535
and transfer and thereby generates larger and more sustained
information rents (Jensen and Meckling, 1995). Second, competi-
tion and new market opportunities demand fast and frequent
decision-making as under these market conditions information
becomes obsolete at a faster rate and the consequences of lost
opportunities due to delayed decisions become more severe
(Christie et al., 2003). Dual leadership allows firms to make speed-
ier decisions and react more quickly to new information than sep-
arate leadership because the former eliminates an extra chain of
command, namely the non-CEO COB (Larcker and Tayan, 2011).
These arguments, which we call the information advantage argu-
ment of CEO duality, suggest that post trade liberalization, the
value contribution of dual leadership is greater for firms with high
information costs than for those with low information costs.
We study 1926 U.S. firms from 1979 to 1998 and find that post
trade liberalization duality firms outperform non-duality firms.
Among firms that experience elimination of import tariffs, dual
leadership increases Tobin’s Q by 2.95%. Among firms that experi-
ence elimination of export tariffs, dual leadership increases Tobin’s
Q by 3.83%. The results are robust to various robustness checks,
including controlling for firm fixed effects and firm-level or indus-
try-level clustering, temporary changes in the board leadership
structure, and various operating and governance variables that
potentially affect firm performance. To test the information advan-
tage argument of CEO duality, we partition firms based on the level
of information costs before trade liberalization. Consistent with the
argument, the performance contribution of dual leadership is
stronger for firms with high information costs than for those with
low information costs.
An alternative explanation for our findings is that the exoge-
nous shock to the competitive environment reduces agency costs
and that duality firms disproportionately benefit from such reduc-
tion. To test this possibility, we partition the sample based on the
strength of corporate governance before trade liberalization. As
firms with weak governance have higher agency costs (Shleifer
and Vishny, 1997; Hartzell and Starks, 2003), we should then find
a stronger duality effect in the partition of firms with weaker gov-
ernance if our results are driven by a reduction in agency costs. We
find the opposite. The positive effect of dual leadership is stronger
for firms with higher total institutional ownership, higher holdings
by block institutional investors, and higher holdings by the top five
institutional investors.
As the literature is replete with evidence that ‘‘competition is the
enemy of the sloth’’ (Nickell, 1996; Bertrand and Mullainathan,
2003), we also test whether dual leadership has a positive effect
on firm performance after controlling for efficiency gains due to
increased competition. We find that post trade liberalization firms
that receive tariff concessions and improve efficiency or reduce
input costs have higher Tobin’s Q. Importantly, the performance
contribution from dual leadership exceeds the performance contri-
bution from efficiency gains.
Our paper makes several contributions. First, the literature lacks
clear evidence on the impact of CEO duality on firm performance
due to endogeneity issues (Hermalin and Weisbach, 2003; Adams
et al., 2010). We use an exogenous shock to a firm’s competitive
environment, thereby mitigating the endogeneity problem, and
find evidence that CEO duality is beneficial to firm performance
when competition intensifies. Second, although arguments in favor
evidence linking the benefits of dual leadership to firm perfor-
mance. We provide direct evidence for the information benefits
of dual leadership. Third, our results, together with Bloom and
Van Reenen (2007), shed light on some seemingly puzzling phe-
nomena in practice. Firms have been under enormous pressure
to abolish CEO duality for over two decades. In many countries,
separate leadership has become the norm. For example, in the late
536 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552
1980s, a majority of U.K. firms combined the CEO and COB titles.
Now, less than 5% of U.K. firms still do. In contrast, U.S. firms and
some U.S. investors have been reluctant to embrace the practice.3
We find that duality firms outperform non-duality firms when com-
petitive environments change. A key finding in Bloom and Van
Reenen (2007) is that poor management practices are more preva-
lent when product market competition is weak. Both Bloom and
Van Reenen (2007) and the 2013 World Competitiveness Yearbook
by the International Institute for Management Development find
that the U.S. has one of the most competitive markets in the world.
These pieces of evidence paint the picture that firms adopt the win-
ning governance structure in response to their competitive environ-
ments. Therefore, our results have important policy implications
given the strong push for U.S. firms to abolish CEO duality. Our
results suggest that the single-minded push for splitting the CEO
and COB titles can be counterproductive, especially to those firms
that face high information costs or experience rapid changes in the
competitive environment.
The rest of the paper is organized as follows: Section 2 presents
the arguments in favor of and in opposition to dual leadership and
summarizes the literature on the duality–performance relation;
Section 3 discusses the research design; Section 4 describes the
data collection process and the sample; Sections 5 and 6 present
the empirical results; finally, Section 7 concludes.
2. Institutional background
2.1. Arguments regarding the costs and benefits of dual leadership
The arguments against dual leadership (or in favor of separate
leadership) are largely based on the agency theory. CEOs of modern
corporations have decision rights but not control rights over share-
holder capital. As a result, CEOs have conflicting interests and do
not always act to maximize shareholder value. The board of direc-
tors is the apex of the decision control system of modern corpora-
tions, which mitigates agency problems due to the separation of
ownership and control (Fama and Jensen, 1983). Having CEOs lead
this decision control hierarchy likely compromises the effective-
ness of the control system and exemplifies the ultimate conflict
of interest. Supporting this conflict-of-interest argument, empirical
studies find that when CEO and COB titles are combined, the CEO is
paid more and the sensitivity of CEO turnover to firm performance
is lower (Core et al., 1999; Goyal and Park, 2002). Proponents of
separate leadership also argue that this arrangement allows the
CEO to focus on running the business, while the COB focuses on
running the board. An independent and experienced COB can also
be a valuable resource and a sounding board for the CEO (Dalton
et al., 1998).
The arguments in support of dual leadership emphasize the
unparalleled firm-specific knowledge of CEOs and the benefits of
strong stewardship. As CEOs ‘‘may often have the best specific
knowledge of the strategic challenges and opportunities facing
the firm’’ (Jensen and Meckling, 1995, p. 13), a CEO who is also
in charge of the board should be able to coordinate board actions
and implement strategies more swiftly, giving the firm a competi-
tive edge particularly in tough business conditions. Since acquiring
and transmitting firm-specific information can be costly, dual
leadership potentially enjoys large cost savings by eliminating
3 4
A recent example is the controversy over whether to strip Jamie Dimon (the CEO
of J.P. Morgan Chase) of his COB title at the 2013 shareholder meeting. While CalPERs
and proxy advisory firms like Institutional Shareholders Services and Glass, Lewis &
Co. are in favor of a shareholder proposal to separate the dual roles, the legendary
investor, Warren Buffet, and proxy advisory firms like Egan–Jones Proxy Services are
against it. In the end, the proposal received 32% affirmative votes and failed to pass.
Also see Section 7 for more discussion on this issue.
information transferring and processing costs associated with
non-CEO chairmen. Consolidated power also provides clarity
regarding the leadership and direction of the firm, which promotes
effective dealing with external parties (Dalton et al., 1998). Addi-
tionally, the COB title is an integral part of the CEO incentive con-
tract. If a firm does not award the additional title of COB, its CEO
may be less motivated to work and even consider leaving the firm.4
Brickley et al. (1997) argue that separate leadership imposes
costs on the succession planning process. Brickley et al. (1997) cite
the case studies by Vancil (1987) that firms frequently follow a
‘‘passing-the-baton’’ process of having the retiring CEO retain the
COB title so that valuable information can be passed on to the
new CEO and the board can have a probationary period to monitor
the new CEO in action. During this period, the new CEO typically
holds additional operating titles such as President or Chief Operat-
ing Officer. If he or she successfully passes the test, the new CEO
earns the additional COB title and the old COB resigns from the
board. Vancil argues that this process eases the transition from
active duty to retirement for an aging CEO and thus makes it less
likely that the CEO will attempt to hold on to his position too long.
Brickley et al. further argue that the prospect of being promoted to
the chairmanship can provide substantial incentives to the new
CEO and these incentives are lost if the firm maintains an indepen-
dent COB. Lastly, installing non-CEO COBs creates its own agency
problems in the form of ‘‘who monitors the monitor’’ (Brickley
et al., 1997).5
In summary, it is not theoretically obvious whether dual or sep-
arate leadership is more beneficial to firm performance. Therefore,
the efficacy of CEO duality is an empirical question.
2.2. Mixed evidence on the relation between dual leadership and firm
performance
Rechner and Dalton (1991) study 141 Fortune 500 firms that
had a stable board leadership structure over 1978–1983. They find
a positive correlation between firm performance and separate
leadership. Pi and Timme (1993) study 112 U.S. banks from 1987
to 1990 and find a higher return on assets for those with separate
titles. Boyd (1995) studies 192 U.S. firms in 1980 and finds that the
duality–performance relation varies by industry conditions.
Brickley et al. (1997) study 661 U.S. firms in the 1989 Forbes com-
pensation survey and find that firms with separate leadership do
not perform better. Indeed, they conclude that duality firms are
associated with better accounting performance. To compare with
Pi and Timme (1993), Brickley et al. (1997) separately study banks
and thrifts and find no significant differences in performance
across firms with different board leadership models. Iyengar and
Zampelli (2009) study S&P1500 firms that did not change the
duality structure during 1995–2003. They find no evidence that
firms purposefully choose duality structures to optimize firm
performance.
In terms of market reactions to changes in board leadership
structures, Baliga et al. (1996) study 181 Fortune 500 firms over
1986–1991 and find insignificant announcement returns. Based
on the announcements of 157 firms over 1896–1996, Palmon and
Wald (2002) find that small (large) firms experience negative
(positive) abnormal returns when changing from dual to separate
leadership. Their results are in contrast to Faleye (2007b), who
Jamie Dimon, the CEO of J.P. Morgan Chase, said that he may leave the bank if
shareholders vote to separate the CEO and COB positions at the 2013 annual meeting
(Reuters, May 11, 2003).
5
In Appendix A, we give some examples of the arguments that firms make to
support their decisions of having a dual leadership structure, including that it
promotes clarity regarding the leadership of the firm, facilitates succession planning,
and enhances more effective business planning and execution.
 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552
finds that dual leadership increases Tobin’s Q for complex firms but
decreases it for non-complex firms. Dey et al. (2011) study
S&P1500 firms over 2001–2009 and find that the greater the like-
lihood of a firm predicted to have a dual leadership structure based
on an economic determinants model, the more negative are the
market reactions to the announcement of a split of the titles.
Larcker et al. (2011) examine market reactions to two regulations
proposed in 2009 that would ban CEO duality. They find that
abnormal returns are not related to the duality status.
Several studies analyze the performance consequences of a
change in the board leadership structure. Baliga et al. (1996) find
no evidence of changes in operating performance around changes
in the board leadership structure. Dey et al. (2011) find that firms
combining (splitting) the titles have better (worse) post-announce-
ment performance. Krause and Semadeni (2013) study three forms
of separation: apprentice (the former CEO-chair relinquishes the
CEO title but retains the COB title), departure (firms replace the
CEO-chair with two different individuals), and demotion (firms
strip the CEO-chair of the COB title). They find that all three forms
of separation enhance future firm performance if current perfor-
mance is poor, although the conditional effect is only statistically
significant for apprentice and demotion separations.
Two studies use exogenous shocks to study the efficacy of CEO
duality. In 1992, the Cadbury Committee called on U.K. firms to
separate the titles of CEO and COB. Using this external shock,
Dahya et al. (2009) test whether firm performance improved after
the separation. They fail to find any performance improvement.
Using the natural experiment of the thrift crisis of the late 1980s,
Byrd et al. (2012) find that duality thrifts are more likely to survive
the crisis.
After completing a meta-analysis of 31 studies, Dalton et al.
(1998) conclude that CEO duality does not affect performance
and firm size does not moderate the duality–performance relation.
Upon separate reviews of the literature, Dalton and Dalton (2011)
and Krause et al. (2014) conclude that the literature lacks evidence
of a substantive relation between firm performance and the board
leadership structure. Both studies urge scholars to explore new
methods and new contexts when studying this relation. (Please
also see Dahya and Travlos (2000) for an excellent review of prior
studies on the duality–performance relation.)
3. Research design
3.1. The Canada–United States Free Trade Agreement of 1989
On January 2, 1988, U.S. President Ronald Reagan and Canadian
Prime Minister Brian Mulroney signed the Canada–United States
Free Trade Agreement (FTA), which eliminated tariffs and other
trade barriers between the two countries. To take effect, the FTA
had to be approved by the U.S. Congress and the Canadian Parlia-
ment. While it passed the U.S. Congress smoothly, the FTA encoun-
tered strong opposition in Canada. Mulroney’s Progressive
Conservative Party controlled the House, but the Senate, which
had a Liberal Party majority, refused to ratify the FTA until Canadi-
ans voted on the issue in a national election. Mulroney was forced
to dissolve the Parliament and called a general election. Although
more Canadians were against the FTA than in favor of it, Mulro-
ney’s party won the election as they benefitted from being the only
party in favor of the agreement, while the opposition parties split
the anti-free-trade vote. The FTA took effect on January 1, 1989.
Since the passage of the FTA was improbable and unexpected, it
qualifies as an exogenous shock (Brander, 1991; Thompson,
1993; Guadalupe and Wulf, 2010). The FTA is also a clean policy
experiment, untainted by confounding events such as macroeco-
nomic shocks or financial crises (Trefler, 2004).
537
The FTA has been shown to significantly impact the competitive
environment of U.S. firms. For example, Clausing (2001) finds that
the FTA dramatically increased U.S. imports from Canada and that
the increase was larger for goods with greater tariff reductions. In
addition, the FTA is associated with substantial employment loss,
labor productivity gains, and changes in price–cost margin
(Trefler, 2004; Guadalupe and Wulf, 2010). As Appendix B shows,
tariff reductions on Canadian imports to the U.S. and U.S. exports
to Canada can be as high as 36% and 48%, respectively.
3.2. Empirical method
Like other corporate finance research, an analysis of the impact
of dual leadership on firm performance faces the endogeneity chal-
lenge. More specifically, board leadership structure is most likely
endogenous. For instance, firm performance may be both a result
of CEO duality and, itself, a driver that influences a firm’s decision
to adopt CEO duality (Hermalin and Weisbach, 2003). This endoge-
neity creates estimation problems when the decision of board
leadership structure is made on the basis of latent factors that cor-
relate with the error term in the regression (Adams et al., 2010).
Ideally to tackle this endogeneity challenge, we would like to have
an exogenous shock to the board leadership structure (Wintoki
et al., 2012). However, to the best of our knowledge, such exoge-
nous shocks to U.S. firms do not exist at this time. Therefore, like
other researchers, we use an exogenous shock that disrupts the
relation between the endogenous choice variable and the outcome
variable.6 The idea is that because the exogenous shock of the FTA
was unexpected, it is difficult to argue that firms optimally chose
the board leadership structure beforehand to deal with the problems
posed by the new competitive environment. Therefore, relating pre-
existing board leadership structures to post-shock firm performance
mitigates the endogeneity problem. As the exogenous shock only
affects some firms, we also alleviate the unobserved firm heteroge-
neity problem through benchmarking performance changes of firms
affected by the exogenous shock against performance changes of
firms unaffected or less affected by the exogenous shock. More spe-
cifically, we estimate the following baseline model to assess the
impact of dual leadership on firm performance:
0
Tobin s Q it ¼ c1 duali  post89  tariffi þ c2 post89  tariffi þ sXit
þ dt þ di þ eit ; ð1Þ
where i indexes firms, duali is a dummy that equals one if the firm
has a stable board leadership structure of the CEO being the COB,
post89 is a dummy that equals one from 1989 onwards, tariffi is
the average tariff rate for firm i during the period of 1986–1988,
X is a vector of firm characteristics such as firm size, dt are year
dummies that control for time trends, di are firm fixed effects that
absorb time-invariant industry and firm heterogeneities, and eit is
the error term adjusted for heteroskedasticity and firm-level
clustering. (The results hold if we use industry-level instead of
firm-level clustering.) It is worth noting that without the triple
interaction term, this framework is a standard differences-in-differ-
ences specification with continuous treatment that other studies
(see, e.g., Guadalupe and Wulf, 2010) have used to exploit the
quasi-natural experiment of the 1989 trade liberalization.
To mitigate the endogeneity problem, we need to use board
leadership in the event year or just before (Low, 2009;
Guadalupe and Wulf, 2010). Further, Brickley et al. (1997) show
6
Frésard (2010) uses tariff cut shocks to examine the effect of cash holdings on
firm performance. Almeida and Kim (2012) use the shock of the 1997 Asian financial
crisis to study the efficiency of the internal capital market of business groups.
Gormley et al. (2013) use a shock to business risk (workplace exposures to
carcinogens) to analyze the relation between CEO pay and corporate risk-taking.
Also see Zingales (1998) and Butler and Cornaggia (2011).
538 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552

Table 1
Variable description.

Variable name Variable description [computation presented using WRDS variable names]
Main variables of interest
Dual Dummy variable that equals one if the firm has a stable duality status for 1988–1998, or equals zero if the firm has a stable non-duality status
for 1988–1998. We define a firm as having a stable duality (non-duality) status, if the firm has a CEO (a director other than the CEO) as the
Chairman of the Board (COB) for more than 80% firm years for a minimum of four years from 1988 to 1998
Tariff_import The average U.S. tariff rates on Canadian imports in 1986–1988
Tariff_export The average Canadian tariff rates on U.S. exports in 1986–1988
Tariff_rank Tariff rank. We assign a score of zero to a firm whose import tariff rate and export tariff rate are zero; in other words, the firm is not affected
by the 1989 FTA. We rank firms with positive import tariff rates, and assign a score of two to a firm if it has an above-average import tariff
rate or a score of one if it has a below-average import tariff rate. We assign the scores to firms with positive export tariff rates in the same
way. Tariff rank is the sum of the above-mentioned scores. Hence, the maximum tariff rank is four with the minimum being zero
Tobin’s Q Market value of common equity minus book value of common equity plus book value of total assets, over book value of total assets;
[(prcc_f  csho-ceq + at)/at]
Key operating characteristics
Firm size Natural logarithm of total book assets; [ln(at)]
Return on assets (ROA) Earnings before interest, taxes, and depreciation (EBIT) over book value of total assets; [(oiadp + dp(if not missing))/at]
Return on equity (ROE) EBIT over common equity; [(oiadp + dp(if not missing))/ceq]
Past 3-year sales Geometric mean of sales growth rates over the past three years; [((salet/salet1)  (salet1/salet2)  (salet2/salet3))1/3  1]
growth rate
Debt ratio Long-term debt over total assets; [dltt/at]
Volatility Standard deviation of daily stock returns  the square root of 252, if the stock is traded for at least a quarter of the year
R&D ratio R&D expenditure over sales; [xrd/sale]. xrd = 0, if missing
Ratio of advertising Advertising expense over sales; [xad/sale]
expense
Ratio of intangible Intangible assets over total book assets; [intan/at], if negative then zero (one such observation)
assets
Analysts’ forecast errors The difference between actual earnings and the median consensus forecast deflated by the stock price at the end of the corresponding quarter
#Business segments The number of business segments, in which the firm operates
zCash The cash-to-assets ratio minus the industry-year mean, over the industry-year standard deviation (Frésard, 2010); [the cash-to-asset
ratio = (ch + ivst)/at]
Sales per employee Sales over total number of employees; [sale/(emp  1000)]
Overhead expense Selling, General and Administrative Expense over sales; [xsga/sale]
Input costs Costs of goods sold over sales; [cogs/sale]
Wage Employee wage; [(xlr  1000)/emp]
Key governance variables
Board size Total number of directors on the board
%Outsider Percent of non-executive directors on the board
%D&O Percent of director and officer ownership
%Institution_own Percent of institutional ownership

This table describes the key variables used in the study.

that many instances of a board leadership structure change are
transient due to CEO succession. To mitigate these problems, we
require sample firms to exist in 1988 and follow a stable board
leadership model, i.e., no change in duality status for more than
80% of firm years for a minimum of four years from 1988 to
1998. For example, a firm with four years of board data is classified
as following a stable board leadership model only if it had the same
board leadership status during 1988–1991, a firm with nine years
of board data is classified as following a stable board leadership
model if it changed the board leadership structure only once
during 1988–1996, and a firm with more than ten years of board
data is classified as following a stable board leadership model if
it changed the board leadership structure only twice during
1988–1998.7
We use three measures of tariff concessions (tariffi) to capture
the changes in competitive environments: (1) the FTA-mandated
U.S. tariff rate reduction (tariff_import) on Canadian imports, (2)
7
We also use the board leadership structure in 1988 as a robustness check. Our
results hold using this alternative definition of duali. We discuss this robustness check
in more detail in Section 5.1.3. Therefore, we are agnostic in the research design about
whether and how board leadership structures respond to changes in competition. In
the case that firms do adapt their board leadership structures in response to changing
competitive environments, it biases us against finding significant results. Albeit an
important and intriguing research question, the adjustment speed of board leadership
structure is beyond the scope of this paper. We refer interested readers to Cicero et al.
(2013), who analyze the adjustment speed of board size and board composition.
the FTA-mandated Canadian tariff rate reduction on U.S. exports
(tariff_export), and (3) a score (tariff_rank) that we construct based
on the rankings of the import and export tariff rates. Specifically,
we separately rank firms with positive import tariff rates and posi-
tive export tariff rates into two groups. Firms with above-average
tariff rates receive a score of two, while firms with below-average
tariff rates receive a score of one. As a firm can have import and
export tariff rates both above average, the maximum value of
tariff_rank is four. A firm with both import and export tariff rates
of zero receives a score of zero. Therefore, tariff_rank captures
the aggregate effect that the 1989 FTA has on a firm in terms of
both increased competition and expanded market opportunities.
While all tariffs were scheduled to go to zero after 1989, some tariff
reductions took effect immediately and others were to be phased
out over ten years. This phase-out schedule is a potential source
of endogeneity. To address this problem, we follow Guadalupe
and Wulf (2010) and treat all industries equally regardless of their
phase-out schedules by exploiting the differential tariff rates
during 1986–1988. In other words, the tariff rates (tariffi) are the
average tariff rates of 1986–1988.
We choose Tobin’s Q as our primary measure of firm perfor-
mance because it is the conventional proxy for firm performance
in corporate finance literature, including studies on the impact of
the board of directors on firm performance (see, e.g., Yermack,
1996; Faleye, 2007a). Further, Tobin’s Q measures the present
value of all future cash flows over the replacement cost of tangible
 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552 539

Table 2 Table 3
Tariff rates in 1988. Sample description.

#Firms %Firms #4-digit Tariff rates N Mean Median Std. dev.

(N) (=N/ SIC Mean Median Std. Tobin’s Q 25,246 1.66 1.29 1.41
1384) codes dev. Total assets (in $millions) 25,246 1706.36 120.35 8726.08
#Business segments 25,244 1.81 1.00 1.31
When either tariff_import or tariff_export is positive
ROA 25,246 7.08% 8.66% 13.02%
Tariff_import 802 58 201 1.72% 0.37% 2.84%
ROE 24,635 15.52% 19.59% 37.79%
Tariff_export 844 61 231 2.81% 1.77% 3.97%
Past 3-year sales growth rate 25,246 13.51% 9.71% 22.94%
Tariff_rank 916 66 237 1.71 2.00 1.41
Debt ratio 25,246 18.24% 15.09% 16.73%
When both tariff_import and tariff_export are positive Volatility 25,246 52.79% 43.49% 32.75%
Tariff_import 730 53 195 3.16% 3.10% 3.25% R&D ratio 25,246 3.87% 0.00% 12.80%
Tariff_export 730 53 195 4.43% 3.29% 4.41% Ratio of advertising expense 9343 3.41% 1.98% 4.29%
Tariff_rank 730 53 195 2.88 3.00 0.75 Ratio of intangible assets 21,157 5.37% 0.59% 9.96%

This table presents the summary statistics of the import and export tariff rates for
1988. Import tariff data come from Feenstra (1996). Export tariff data come from
Trefler (2004). Tariff rates are aggregated from the commodity level to the level of
the four-digit Standard Industrial Classification (SIC) codes. To get firm-level tariff
rates, we first obtain segment sales and the four-digit SIC codes associated with
each segment from the Compustat Segments Database, then weigh the tariff rates at
the level of the four-digit SIC codes by firms’ segment sales, and sum the weighted
rates. There are 1384 firm-year observations in 1988. Tariff variables (i.e.,
tariff_import, tariff_export, and tariff_rank) are as described in Table 1.
assets. Thus, it captures all aspects of firm operation including
managerial entrenchment (Lang and Stulz, 1994). We control for
other firm characteristics that might affect Tobin’s Q, including
firm size (the natural logarithm of total book assets), current-year
ROA, one-year and two-year lagged ROA, growth opportunities
(sales growth over the past three years), capital structure (long-
term debt over total book assets), and risk (annualized daily stock
return volatility). We describe these and other variables as well as
their computation in Table 1.
4. Sample
As noted earlier, the FTA was implemented in 1989, but had a
phase-out schedule of ten years. Lileeva and Trefler (2010) report
that by 1996 the tariff was down to less than one-fifth of its
1988 level, and by 1998 all tariffs were eliminated. Thus, we
choose 1979–1998 as our sample period to have an equal number
of years before and after 1989. Import tariff data come from
Feenstra (1996), while export tariff data come from Trefler
(2004). Tariff rates are aggregated from the commodity level to
the level of the four-digit Standard-Industrial-Classification (SIC)
codes. To get firm-level tariff rates, we obtain segment sales and
the four-digit SIC codes associated with each segment from the
Compustat Segments Database, weigh the tariff rates at the level
of the four-digit SIC codes by firms’ segment sales and sum the
weighted rates.8
Table 2 provides key summary statistics for tariff rates in 1988.
We report for only 1988 because (1) it is the year immediately pre-
ceding the implementation of the 1989 FTA and (2) the firm-level
tariff rates (tariffi) are constant throughout the sample period in
our research design. Two patterns are worth noting. First, if a firm
receives the FTA-mandated import tariff reduction, it also likely
receives the FTA-mandated export tariff reduction. Indeed, while
8
Using segment sales and four-digit SIC codes from the Compustat Segments
Database to compute weighted tariff rates yields a more precise measure of tariff
concessions than using tariff rates based on the four-digit SIC codes from the
Compustat North America Database. This is because the Compustat North America
Database assigns the four-digit SIC codes to a firm based on the greatest value of
product shipments for a product group. As an example, if a firm produces two
products with 40% of its shipments in SIC 2046 and 60% in SIC 6519, the assigned SIC
code would be 6519. The import tariff rate for SIC 2046 is 0.045 and for SIC 6519 is
zero. Thus, using four-digit SIC codes from the Compustat North America Database
will yield a tariff rate of zero, while using segment sales and four-digit SIC codes from
the Compustat Segments Database will yield a tariff rate of 0.018
(0.045  0.4 = 0.018).
%Dual 25,246 63.99% 100.00% 48.00%
Board size 21,738 8.50 8.00 3.43
%Outsider 21,738 63.93% 66.67% 18.87%
%D&O 19,484 21.42% 15.07% 20.38%
%Institution_own 20,275 32.87% 30.25% 23.61%
This table presents summary statistics of key operating and governance variables
for the sample used in this study. The sample is constructed from the intersection of
Compustat North America (financial statement data), Compustat Segments (seg-
ment sales), CRSP (stock price data), and the SEC Compact Disclosure Database
(governance data), excluding utilities and financial institutions. After meeting the
necessary data requirement, the final sample has 1926 unique firms or 25,246 firm
years from 1979 to 1998. Variables are as described in Table 1. All operating vari-
ables are winsorized at the 1% level at both tails, except for Tobin’s Q, total assets,
and the number of business segments, which will be in natural logarithm form in
regressions.
the FTA affects 66% of the sample, 80% of the 66% firms receive both
import and export tariff reductions. Appendix B confirms this over-
lap. For example, the Rubber and Plastics Footwear industry
(SIC = 3021) has the highest import tariff rate and one of the high-
est export tariff rates. Second, when firms receive both import and
export tariff reductions, their import and export tariff rates are
higher than the rates of firms that receive only one type of tariff
concessions. Because of the high correlation between import and
export tariff rates, we do not include tariff_import and tariff_export
simultaneously in the regressions, but use tariff_rank instead.
To be selected for our sample, the firm cannot be a utility or a
financial institution, must follow a stable board leadership model
(as defined in Section 3.2), and must have positive values of total
assets and net sales, daily stock returns for at least a quarter of
the fiscal year, and Compustat data before 1989. We obtain finan-
cial data from Compustat North America, segment sales from Com-
pustat Segments, and stock returns from CRSP. Board and
ownership data come from the SEC Compact Disclosure Database.
To the best of our knowledge, the Disclosure database provides
the earliest coverage for board structure of publicly traded firms,
which starts in 1988. Although Disclosure’s data coverage does
not go back to 1979, which is the start of our sample period, it is
not a concern to our multivariate tests because our research design
requires using board structure in the event year or just before (the
event year for our study is 1989). The final sample consists of 1926
unique firms (25,246 firm years) from 1979 to 1998, or 1180
unique firms (16,156 firm years) that have stable dual leadership
and 746 unique firms (9090 firm years) that have stable separate
leadership. Table 3 reports the summary statistics of key firm char-
acteristics. To mitigate the problem of extreme outliers, we wins-
orize all operating variables at the 1% level at both tails except
for Tobin’s Q, total assets, and the number of business segments,
which will be in natural logarithm form in the regressions. The per-
cent of the sample firms with stable dual leadership is 64%, which
is lower than the percentage (about 80%) that other studies report
for similar time periods (Fig. 1). This occurs because the SEC
Compact Disclosure database covers a much larger and more
comprehensive set of firms, and small firms are more likely to have
separate leadership (Linck et al., 2008; Pathan and Skully, 2010).
540 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552

Table 4
Impact of dual leadership on Tobin’s Q.

Dep. var. = Ln(Tobin’s Q) (1) (2) (3)

b
Dual  post89  tariff_import 1.721
(0.020)
Post89  tariff_import 0.686
(0.322)
Dual  post89  tariff_export 1.320a
(0.000)
Post89  tariff_export 0.044
(0.897)
Dual  post89  tariff_rank 0.028a
(0.002)
Post89  tariff_rank 0.006
(0.465)
Firm size 0.110a 0.110a 0.110a
(0.000) (0.000) (0.000)
ROA 0.819a 0.816a 0.819a
(0.000) (0.000) (0.000)
ROAt1 0.139a 0.138a 0.138a
(0.001) (0.001)b (0.001)
ROAt2 0.100a 0.097b 0.098b
(0.014) (0.017) (0.017)
Past 3-year sales growth rate 0.279a 0.278a 0.278a
(0.000) (0.000) (0.000)
Debt ratio 0.015 0.017 0.016
Fig. 2. Time trend of Tobin’s Q. The graphs display time trends of median values of (0.690) (0.656) (0.668)
Tobin’s Q for firms with a stable duality status of board leadership (Duality firms) Volatility 0.108a 0.107a 0.107a
and firms with a stable non-duality status of board leadership (Non-duality firms). (0.000) (0.000) (0.000)
We define a firm as having a stable duality (non-duality) status, if the firm has a Firm fixed effects Yes Yes Yes
CEO (a director other than the CEO) as the Chairman of the Board for more than 80% Year fixed effects Yes Yes Yes
firm years for a minimum of four years from 1988 to 1998. Panel A contains sample #Obs 25,246 25,246 25,246
firms impacted by the 1989 trade liberalization. Panel B contains sample firms not F-value 70.18 70.86 70.53
impacted by the trade liberalization. Adj. R-squared 0.646 0.647 0.646

Fig. 2 contrasts time trends of median values of Tobin’s Q for
firms with stable duality status against firms with stable non-dual-
ity status. As we defined earlier, firms with stable duality status
(duality firms) have the CEO as the COB for more than 80% of firm
years for a minimum of four years from 1988 to 1998, while firms
with stable non-duality status (non-duality firms) are those who
have a non-CEO COB for more than 80% of firm years for a mini-
mum of four years from 1988 to 1998. We report median values
of Tobin’s Q to mitigate the problem of outliers. We graph the time
trends separately for firms impacted by the 1989 FTA (Panel A) and
firms not impacted by the 1989 FTA (Panel B).
A cursory inspection of Panel A suggests that in the sample
impacted by the 1989 FTA, duality and non-duality firms have
similar valuations prior to 1989. Post trade liberalization, Tobin’s
Q increases for both types of firms, although the increase appears
to be larger for duality firms. Fig. 2 Panel B shows that in the sam-
ple not impacted by the 1989 FTA, duality and non-duality firms
exhibit similar trends in Tobin’s Q. In this sample, we do not
observe an obvious shift in trends nor a clear separation in Tobin’s
Q between the two types of firms around 1989 as we do for the
sample that is impacted by the 1989 FTA. It is interesting to note
that in the sample not impacted by the 1989 FTA, duality firms
have higher Tobin’s Q than non-duality firms for most of the sam-
ple years. This pattern is in line with the existing literature that
better performing CEOs are rewarded the additional title of the
COB (Brickley et al., 1997). Overall, Fig. 2 offers suggestive evidence
that duality firms outperform non-duality firms when the business
environment becomes more competitive and dynamic.
5. Main results
5.1. Impact of dual leadership on firm performance
Columns (1), (2), and (3) of Table 4 report regression results
from the baseline model, Eq. (1), using import tariff rates, export
This table presents regression estimation of the impact of dual leadership on firm
performance. See Table 1 for variable definition and description. We estimate all
models controlling for heteroskedasticity and firm-level clustering. p-values are
reported in parentheses below the coefficient estimates.
c
Significance at the 10% level.
a
Significance at the 1% level.
b
Significance at the 5% level.
tariff rates, and tariff ranks, respectively. The coefficient of
dual  post89  tariff_import is significantly positive in Column (1).
The average import tariff rate for the sample used in the regression
is 1.69%. This result suggests that duality firms, which receive the
FTA-mandated tariff cuts on Canadian imports, experience an
increase of 2.95% in Tobin’s Q, compared to non-duality firms that
also receive the FTA-mandated tariff cuts. Using export tariff rates,
we find similar results. The coefficient of dual  post89  tar-
iff_export is significantly positive in Column (2). Given that the
average export tariff rate for the sample used in the regression is
2.85%, the result suggests that dual leadership increases Tobin’s
Q by 3.83%. When using tariff ranks, we again find corroborating
results. As defined in Section 3.2, tariff rank is a score based on
the rankings of a firm’s import and export tariff rates. An above-
average tariff rate receives a score of two, a below-average tariff
rate receives a score of one, and a zero tariff rate receives a score
of zero. Therefore, with the coefficient of dual  post89  tariff_rank
being 0.028, the result suggests that an increase of one rank is
associated with an increase of 2.79% in Tobin’s Q. The economic
size of the valuation impact of dual leadership is similar to that
of board size. Yermack (1996) finds that expanding an eight-
member board by one director is associated with a decrease of
4% in Tobin’s Q. Estimation results of our control variables are in
line with the existing literature. For example, Tobin’s Q is
negatively and significantly related to firm size and stock return
volatility, similar to the findings in Anderson and Reeb (2003).
Tobin’s Q is positively and significantly related to sales growth
and ROA, similar to the findings in Yermack (1996) and Anderson
and Reeb (2003).
 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552 541

Table 5
Impact of dual leadership on Tobin’s Q – robustness check.

Dep. var. = Ln(Tobin’s Q) Tariff = tariff_import Tariff = tariff_export Tariff = tariff_rank

(1) (2) (3) (4) (5) (6)
Dual  post89  tariff 2.369a 2.344b 1.486a 1.699a 0.037a 0.043a
(0.003) (0.020) (0.000) (0.002) (0.000) (0.000)
Post89  tariff 1.286c 0.993 0.093 0.070 0.010 0.003
(0.088) (0.306) (0.807) (0.893) (0.293) (0.799)
Firm size 0.104a 0.101a 0.104a 0.100a 0.104a 0.100a
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
ROA 0.782a 0.982a 0.777a 0.975a 0.780a 0.984a
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
ROAt1 0.118a 0.155a 0.113b 0.152a 0.115a 0.154a
(0.012) (0.013) (0.016) (0.015) (0.014) (0.014)
ROAt2 0.062 0.004 0.056 0.007 0.060 0.001
(0.172) (0.949) (0.213) (0.903) (0.186) (0.985)
Past 3-year sales growth rate 0.302a 0.298a 0.301a 0.295a 0.300a 0.292a
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Debt ratio 0.027 0.026 0.029 0.026 0.028 0.025
(0.511) (0.573) (0.476) (0.573) (0.496) (0.585)
Volatility 0.107a 0.058b 0.107a 0.055b 0.106a 0.053c
(0.000) (0.044) (0.000) (0.052) (0.000) (0.063)
Ln(#business segments) 0.039 0.042 0.041c 0.045c 0.037c 0.037
(0.076) (0.098) (0.057) (0.077) (0.094) (0.150)
zCasht1 0.012c 0.013c 0.012c 0.013c 0.012b 0.014b
(0.067) (0.081) (0.058) (0.063) (0.051) (0.048)
Log(board size) 0.051 0.049 0.044
(0.200) (0.216) (0.265)
%outsider 0.011 0.013 0.011
(0.834) (0.801) (0.834)
%D&O 0.110c 0.112c 0.119b
(0.068) (0.066) (0.046)
%Institution_own 0.212a 0.208a 0.210a
(0.000) (0.000) (0.000)
Firm fixed effects Yes Yes Yes Yes Yes Yes
Year fixed effects Yes Yes Yes Yes Yes Yes
#Obs 21,343 15,364 21,343 15,364 21,343 15,364
F-value 51.58 36.75 52.01 37.16 52.02 37.10
Adj. R-squared 0.650 0.682 0.652 0.684 0.651 0.683

This table presents regression estimation of the impact of dual leadership on firm performance, controlling for other operating and governance characteristics. See Table 1 for
variable definition and description. We estimate all models controlling for heteroskedasticity and firm-level clustering. p-values are reported in parentheses below the
coefficient estimates.
a
Significance at the 1% level.
b
Significance at the 5% level.
c
Significance at the 10% level.

Table 6
Impact of dual leadership on ROA and ROE.

Dep. var. = Ln(Tobin’s Q) Tariff = tariff_import Tariff = tariff_export Tariff = tariff_rank

ROA ROE ROA ROE ROA ROE
(1) (2) (3) (4) (5) (6)
Dual  post89  tariff 0.250 0.092 0.023 0.420b 0.001 0.010b
(0.139) (0.821) (0.766) (0.052) (0.666) (0.044)
Post89  tariff 0.277c 0.269 0.033 0.135 0.002 0.001
(0.092) (0.469) (0.645) (0.495) (0.402) (0.843)
Firm size 0.012a 0.029a 0.012a 0.029a 0.012a 0.029a
(0.000) (0.001) (0.000) (0.001) (0.000) (0.001)
Past 3-year sales growth rate 0.113a 0.264a 0.113a 0.264a 0.113a 0.263a
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Debt ratio 0.091a 0.050 0.091a 0.049 0.091a 0.048
(0.000) (0.250) (0.000) (0.263) (0.000) (0.269)
Volatility 0.057a 0.141a 0.056a 0.140a 0.056a 0.140a
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Firm fixed effects Yes Yes Yes Yes Yes Yes
Year fixed effects Yes Yes Yes Yes Yes Yes
#Obs 25,246 24,555 25,246 24,555 25,246 24,555
F-value 37.77 23.39 37.81 23.79 37.68 23.72
Adj. R-squared 0.574 0.440 0.574 0.441 0.573 0.441

This table presents regression estimation of the impact of dual leadership on ROA and ROE. See Table 1 for variable definition and description. We estimate all models
controlling for heteroskedasticity and firm-level clustering. p-values are reported in parentheses below the coefficient estimates.
a
Significance at the 1% level.
b
Significance at the 5% level.
c
Significance at the 10% level.
542 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552
5.1.1. Impact of dual leadership, controlling for additional operating
and governance variables
We re-estimate Eq. (1), controlling for other operating and gov-
ernance variables that potentially impact Tobin’s Q. Trade liberal-
ization likely has a smaller effect on diversified firms (Frésard
and Valta, 2012). A plethora of academic and anecdotal evidence
shows (see, e.g., Frésard, 2010) that large cash reserves give firms
a competitive edge when business environments suddenly change.
Therefore, as a robustness check, we add to our baseline model the
natural logarithm of the number of business segments and zCash.
Following Frésard (2010), we compute zCash as last year’s cash-
to-assets ratio minus the industry-year mean over the industry-
year standard deviation. As Columns (1), (3), and (5) of Table 5
show, our results hold when we control for these aspects of firm
operation using import tariff rates, export tariff rates, and tariff
ranks, respectively. In Columns (2), (4), and (6) of Table 5, we also
control for the potential effects of board size, board composition,
D&O ownership, and institutional ownership. As the SEC Compact
Disclosure database starts the data coverage in 1988, we set the
1979–1987 values of board size, board composition, D&O owner-
ship, and institutional ownership to be the same as the 1988 values.
Inclusion of these governance variables does not change our results.
5.1.2. Impact of dual leadership on ROA and ROE
As discussed in Section 3.2, we believe that Tobin’s Q is the best
measure of firm performance for the purpose of our study. How-
ever, for completeness, we also test the impact of dual leadership
on operating performance using the accounting measures of return
on assets (ROA) and return on equity (ROE). ROA and ROE are earn-
ings before interests and taxes (EBIT) over book value of total
assets and book value of common equity, respectively. A few cave-
ats are in order. First, while competition unambiguously promotes
efficiency (Nickell, 1996), its impact on profitability is less clear
(Nickell, 1996; Giroud and Mueller, 2010; Frésard and Valta,
2012). Second, accounting measures are prone to managerial
manipulation. For example, Balakrishnan and Cohen (2011) show
that in response to changes in competitive environments firms
may increase or decrease financial misreporting. As Table 6 shows,
dual leadership has no significant impact on ROA and ROE for firms
that receive tariff concessions on Canadian imports. However, dual
leadership has a significantly positive impact on ROE for firms that
receive tariff reduction on U.S. exports. We also find a significantly
positive effect of dual leadership on ROE using tariff_rank.
5.1.3. Additional robustness checks
For robustness, we use an alternative definition of duali. Specif-
ically, we replace the measure of a stable board leadership struc-
ture (defined in Section 3.2) with the board leadership of 1988,
which is a dummy that takes the value of one if a firm combined
the CEO and COB positions in 1988. We re-run the baseline model
using this dummy and obtain similar results. For example, firms
that receive import tariff concessions experience an increase of
2.13% in Tobin’s Q, if they had a dual leadership structure in
1988. Firms that receive export tariff concessions experience an
increase of 3.62% in Tobin’s Q, if they have a dual leadership struc-
ture in 1988. When we use tariff ranks, we find that an increase of
one rank is associated with an increase of 2.10% in Tobin’s Q. In
each case, the significant level is at the 1% level or better.
The FTA affects only the tradable sector (i.e., SIC codes up to
4000). Therefore, as another robustness check, we re-run the base-
line regression, Eq. (1), for two scenarios: (1) firms whose primary
SIC codes are less than 4000; and (2) manufacturing firms (i.e.,
firms whose primary SIC codes are between 2000 and 3999). This
restriction reduces the number of observations to 15,883 and
17,806 firm years for the first and the second scenarios, respec-
tively. Our results remain qualitatively the same in each scenario.
As we discussed in Section 4, we choose to study firms of all SIC
codes, because we want to assess the impact of the FTA on a firm
regardless of whether the FTA affects the primary industry to
which the firm is assigned. Further, duality and non-duality firms
not affected by the 1989 FTA serve as useful control groups for
duality and non-duality firms affected by the 1989 FTA.
We are not aware of any shocks that occurred in 1989 and
impacted the board leadership structure. Nevertheless, as another
robustness check, we add dual  post89 to the baseline model to
control for the possibility that other shocks contemporaneous with
the FTA could systematically affect duality and non-duality firms.
The coefficient of dual  post89  tariff_export is still significantly
positive, but dual  post89 interacted with tariff_import and
tariff_rank are no longer significant. Multicollinearity likely causes
the latter two predictors to lose their significance. The variable of
dual lacks variation across time. Given that we already control
for time and firm fixed effects, adding dual  post89 to the baseline
regression introduces substantial noise in estimating variables
interacted with dual. Consistent with this idea, the Wald test
shows that dual  post89  tariff_import is jointly significant
with post89  tariff_import and dual  post89 at the 1% level
and dual  post89  tariff_rank is jointly significant with
post89  tariff_rank and dual  post89 at the 1% level. Further,
adding dual  post89 does not improve the value of adjusted
R-squared, suggesting that dual  post89 is an unnecessary
predictor variable.9
To summarize, we find strong evidence that dual leadership is
superior to separate leadership when firms’ business environments
become more competitive and dynamic. We find it instructive that
the effect of dual leadership is stronger among firms impacted by
export tariff concessions than among firms impacted by import
tariff concessions. As Appendix B and Table 2 show, tariff reduc-
tions are steeper on U.S. exports than on Canadian imports. There-
fore, this pattern is also consistent with the idea that dual
leadership is more conducive to better firm performance when
competition intensifies, because steeper tariff reductions likely
induce a larger shock to firms’ competitive environments.
5.2. Does dual leadership matter more for firms with high information
costs?
According to the literature (see, e.g., Brickley et al., 1997), the
main benefit of dual leadership is its information advantage over
separate leadership. As a CEO has unparalleled firm-specific infor-
mation, combining the CEO and COB titles incurs lower informa-
tion acquisition, transmission, and processing costs than
separating the titles. Competition magnifies the information bene-
fits of dual leadership because slow information transmitting and
processing speed delays decision-making. When competition
intensifies, information becomes obsolete at a faster rate and the
consequence of lost opportunities due to delayed decision-making
becomes more severe (Christie et al., 2003). Consistent with this
idea, the economic literature shows that firms decentralize when
they need to respond quickly to product market competition and
when local managers have an information advantage over their
headquarters (Bloom et al., 2010; Guadalupe and Wulf, 2010). To
test the information advantage argument, we study next the
impact of dual leadership on firm performance, partitioning the
sample based on the level of information costs in 1988. If compe-
tition magnifies the information benefits of dual leadership, we
should find a stronger duality effect for firms with high levels of
information costs than for those with low levels of information
costs post trade liberalization.
9
Results of these and the following robustness checks are available upon request.
 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552 543

Table 7
Impact of dual leadership on Tobin’s Q, partitioned by the level of information costs.

Dep. var. = Ln(Tobin’s Q) Ratio of advertising expense Ratio of intangible assets R&D ratio Analysts’ forecast errors
(1) (2) (3) (4) (5) (6) (7) (8)
High Low High Low High Low High Low
Dual  post89  tariff_rank 0.077a 0.019 0.044b 0.015 0.022 0.028a 0.037a 0.010
(0.003) (0.195) (0.025) (0.171) (0.187) (0.006) (0.006) (0.381)
Post89  tariff_rank 0.018 0.025c 0.008 0.006 0.011 0.004 0.003 0.005
(0.450) (0.063) (0.700) (0.542) (0.572) (0.675) (0.808) (0.626)
Firm size 0.111a 0.096a 0.112a 0.084a 0.161a 0.073a 0.043a 0.092a
(0.004) (0.000) (0.000) (0.000) (0.000) (0.000) (0.010) (0.000)
ROA 0.650a 0.978a 0.885a 0.815a 0.797a 0.898a 1.776a 0.851a
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
ROAt1 0.073 0.151c 0.241b 0.198a 0.044 0.280a 0.351a 0.047
(0.518) (0.084) (0.037) (0.000) (0.601) (0.000) (0.000) (0.453)
ROAt2 0.278b 0.114c 0.164c 0.159a 0.086 0.199a 0.281a 0.123b
(0.050) (0.094) (0.081) (0.004) (0.313) (0.000) (0.001) (0.038)
Past 3-year sales growth rate 0.325a 0.332a 0.180a 0.292a 0.414a 0.194a 0.259a 0.206a
(0.000) (0.000) (0.001) (0.000) (0.000) (0.000) (0.000) (0.000)
Debt ratio 0.271b 0.035 0.076 0.018 0.008 0.002 0.118c 0.018
(0.027) (0.624) (0.344) (0.747) (0.935) (0.961) (0.085) (0.765)
Volatility 0.209a 0.063c 0.099c 0.077a 0.191a 0.065b 0.000 0.130a
(0.001) (0.099) (0.077) (0.009) (0.000) (0.016) (0.993) (0.000)
Firm fixed effects Yes Yes Yes Yes Yes Yes Yes Yes
Year fixed effects Yes Yes Yes Yes Yes Yes Yes Yes
#Obs 2482 6781 4766 13,321 4865 16,689 8333 9680
F-value 14.93 23.24 21.92 38.84 22.92 54.00 51.39 31.54
Adj. R-squared 0.715 0.677 0.605 0.634 0.624 0.608 0.709 0.593

This table presents regression estimation of the impact of dual leadership on firm performance. ‘‘High’’ or ‘‘Low’’ indicates that the regression includes firms with above or
below mean values of the corresponding variable in 1988. The mean value of the ratio of advertising expense is 3.40%. The mean value of the ratio of intangible assets is 4.79%.
The mean value of the R&D ratio in 1988 is 3.69%. The mean value of Analysts’ forecast errors in 1988 is 0.34%. See Table 1 for variable definition and description. We estimate
all models controlling for heteroskedasticity and firm-level clustering. p-values are reported in parentheses below the coefficient estimates.
a
Significance at the 1% level.
b
Significance at the 5% level.
c
Significance at the 10% level.

Following the literature, we use four variables to measure the
level of information costs: advertising expenditure over sales, intan-
gible assets over total book assets, research and development (R&D)
expenditure over sales, and analysts’ forecast errors. Firms that
spend heavily on advertisement likely have more unique products
and non-standardized production inputs (Levy, 1985; Titman and
Wessels, 1988). As an advertising campaign is frequently tied to a
specific product or company, advertising itself also creates an intan-
gible asset that is non-transferable (Grullon et al., 2006). These con-
siderations suggest that advertising expenditures should be
positively associated with information transmission and processing
costs. Intangible assets likely capture the level of soft information,
which is costly to transfer across parties and over geographic dis-
tance (Alam et al., forthcoming). Further, intangible assets such as
company reputation, customer relationships, and intellectual prop-
erties do not have obvious physical value. Their value critically
depends on a firm’s ability to adapt to the changing environment
and capitalize on new opportunities.10 Studies establish that R&D
involves specialized inputs that are unique to the investing firm and
is a useful proxy for information that is privy to insiders and costly
to transfer and process (Levy, 1985; Titman and Wessels, 1988;
10
A prime example is Eastman Kodak. In 1976, Kodak accounted for 90% of film and
85% of camera sales in America. An innovation giant of its day, Kodak had invented
the first digital camera just a year earlier. Despite the fact that it pioneered the
digitization revolution and predicted in 1979 that digital would replace film by 2010,
Kodak was too slow to change. As Rick Braddock (a Kodak director from 1987 to 2012)
puts it, ‘‘the mindset of the company was ready for the challenge: it was ‘Batten down
the hatches.’ We sold the healthcare business and we started the process of
developing a digital response. But the way the market shifted was dramatically faster
than we had anticipated or than I’d ever seen (Financial Times, 2 April 2012).’’ By
contrast, Fujifilm, which had been a long-time competitor to Kodak and enjoyed a
strong, long-time monopoly on camera film in Japan like Kodak did in the U.S., was
able to adapt to the changing world. For the fiscal year of 2011, Fujifilm reported a net
income of 769 million, while Kodak reported a net loss of 764 million. Kodak declared
bankruptcy on January 19, 2012.
Aboody and Lev, 2000). Lastly, we use analysts’ forecast errors to
measure the level of information asymmetry between managers
and outsiders. Higher levels of information asymmetry should
correlate positively with information acquisition and processing
costs. Following the literature (Hirshleifer et al., 2009), we calculate
analysts’ forecast errors as the difference between actual earnings
and the median consensus forecast deflated by the stock price at
the end of the corresponding quarter. We obtain analysts’ forecast
data from the International Brokers Estimate System (IBES) database.
Table 7 reports the regression results when we separately run
the baseline model, Eq. (1), for firms with high and low information
costs. For brevity, we tabulate the results only for tariff_rank, as it
captures the aggregate shock of both import and export tariff
reductions to firms’ competitive environments and the results
using tariff_import and tariff_export are qualitatively the same. Col-
umns (1) and (2) report the results using advertising spending as
the proxy for the level of information costs. Following the litera-
ture (see, e.g., Himmelberg et al., 1999; Servaes and Tamayo,
2013), we replace missing advertising spending with zero. Consis-
tent with the information advantage argument, the coefficient esti-
mate of dual  post89  tariff_rank is significantly positive for firms
with high levels of advertising spending and is insignificant for
those with low levels of advertising spending. We find similar
results using tariff_import and tariff_export.11 Columns (3) and (4)
11
Using advertising spending has one limitation, as firms are not required to
disclose advertising expenses if they are immaterial. Although using the 1988 values
has the benefit of conditioning the duality–performance relation on pre-determined
levels of advertising spending, estimation noise arises if certain firms disclose
advertising spending in some years and do not in others. Thus, as a robustness check,
we partition the sample based on whether a firm’s advertising expenditure is greater
than zero in a given year. The median value of advertising spending is zero for the full
sample period and for the 1988 year. Using the median value to partition the sample
has the additional advantage of having a similar number of observations in each sub-
sample. We find evidence consistent with the information advantage argument using
all three tariff rates.
544 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552

Table 8
Impact of dual leadership on Tobin’s Q, partitioned by governance strength.

Dep. var. = Ln(Tobin’s Q) %Institutional ownership %Block institutional ownership %Top 5 institutional ownership
(1) (2) (3) (4) (5) (6)
High Low High Low High Low
Dual  post89  tariff_rank 0.038a 0.001 0.031b 0.025b 0.029b 0.023c
(0.002) (0.932) (0.025) (0.049) (0.016) (0.098)
Post89  tariff_rank 0.013 0.003 0.015 0.003 0.018 0.010
(0.261) (0.799) (0.270) (0.791) (0.112) (0.452)
Firm size 0.096a 0.074a 0.120a 0.076a 0.096a 0.081a
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
ROA 1.796a 0.833a 1.283a 1.001a 1.518a 0.844a
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
ROAt1 0.257a 0.171a 0.227a 0.216a 0.222a 0.181b
(0.007) (0.013) (0.006) (0.004) (0.005) (0.018)
ROAt2 0.417a 0.159b 0.317a 0.230a 0.319a 0.205a
(0.000) (0.016) (0.000) (0.001) (0.000) (0.004)
Past 3-year sales growth rate 0.307a 0.259a 0.294a 0.268a 0.328a 0.244a
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Debt ratio 0.018 0.038 0.003 0.049 0.037 0.026
(0.780) (0.564) (0.960) (0.439) (0.539) (0.705)
Volatility 0.036 0.085b 0.017 0.100a 0.009 0.104a
(0.536) (0.019) (0.694) (0.011) (0.844) (0.009)
Firm fixed effects Yes Yes Yes Yes Yes Yes
Year fixed effects Yes Yes Yes Yes Yes Yes
#Obs 7996 8222 6491 9727 8026 8192
F-value 49.29 24.47 20.15 32.65 44.39 25.32
Adj. R-squared 0.722 0.638 0.669 0.667 0.681 0.688

This table presents regression estimation of the impact of dual leadership on firm performance. ‘High’ or ‘Low’ indicates that the regression includes firms with above or below
mean values of the corresponding variable in 1988. The mean value of %institutional ownership in 1988 is 27.64%. The mean value of %Block institutional ownership is 7.00%. The
mean value of %Top 5 institutional ownership is 14.99%. See Table 1 for variable definition and description. We estimate all models controlling for heteroskedasticity and firm-
level clustering. p-values are reported in parentheses below the coefficient estimates.
a
Significance at the 1% level.
b
Significance at the 5% level.
c
Significance at the 10% level.

report the results from using intangible assets as the proxy for the
level of information costs. Again, the results are consistent with
the information advantage argument and hold for all three measures
of tariff rates.
Columns (5) and (6) report the results using R&D spending as
the proxy for the level of information costs. Contrary to the infor-
mation advantage argument, dual  post89  tariff_rank is signifi-
cantly positive for firms with low levels of R&D spending and is
insignificant for firms with high levels of R&D spending. We find
the same pattern for tariff_import. However, we find evidence con-
sistent with the information advantage argument for tariff_export.
The coefficient estimate of dual  post89  tariff_export is 3.115
(p-value = 0.006) for firms with high R&D spending and is 1.058
(p-value = 0.005) for those with low R&D spending.12 Columns (7)
and (8) report the results using analysts’ forecast errors as the proxy
for the level of information costs. If analysts’ forecast errors correlate
positively with the level of information asymmetry between manag-
ers and outsiders, then the positive valuation effect of dual leader-
ship should be larger for firms with larger analysts’ forecast errors
post the trade liberalization. This is indeed the result that we find
using all three tariff rates.
One potential concern is that the levels of advertising spending,
intangible assets, R&D spending, and analysts’ forecast errors are
systematically related to tariff rates. In such a case, we may capture
the effect of dual leadership associated with changes in the com-
petitive environment instead of different levels of information
costs. To mitigate this concern, we include in the regressions only
12
Similarly to advertising spending, for further robustness, we replace missing R&D
spending with zero, partition the sample based on the median value of a firm’s R&D
spending in a given year, and re-run the baseline model. (The median value of R&D
spending is zero for the full sample period and for 1988.) We find evidence consistent
with the information advantage argument using all three tariff rates.
firms with above-average tariff rates and firms that are not
impacted by the 1989 FTA. Our results remain qualitatively the
same.
5.3. Can reduction in agency costs explain the results?
In the preceding section, we find that the information advanta-
ges of the CEO ameliorate the positive effect of dual leadership on
firm performance. The main argument against CEO duality is based
on the agency theory, which predicts that CEOs, as the agent of
shareholders, do not always act in the best interests of sharehold-
ers. As product market competition is arguably the best
governance device in minimizing the agency costs (Shleifer and
Vishny, 1997), an alternative explanation may account for our
results. The exogenous shock of the 1989 FTA increased competi-
tion, forcing firms to reduce agency costs, and duality firms
disproportionately benefited more than non-duality firms from
competition-induced agency cost reduction.
To test this alternative explanation, we partition the sample
based on the strength of corporate governance in 1988, the year
immediately preceding the 1989 FTA, and re-run the baseline
regression. If reduction in agency costs drives our results, we
should find a stronger duality effect in the sample of firms with
weak governance than in the sample of firms with strong gover-
nance.13 Following the literature (see, e.g., Shleifer and Vishny,
1997; Hartzell and Starks, 2003; Frésard and Valta, 2012), we use
institutional ownership, stock holdings by block institutional inves-
tors, and stock holdings by top five institutional investors to proxy
13
We assume that firms with strong corporate governance have lower agency costs
and firms with weak corporate governance have higher agency costs. This assumption
is consistent with a large body of empirical evidence (see, e.g., Hartzell and Starks,
2003; Chen and Chen, 2012; Cornett et al., 2008).
 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552 545

Table 9 (Clark, 1984; Chen et al., 2009). Overhead costs is the ratio of sell-
Impact of dual leadership, after adding the potential effect of efficiency gains due to ing, general and administrative expenses to sales. Input costs is
increased competition.
the ratio of the costs of goods sold to sales. Employee wage is the
Dependent variable = Ln(Tobin’s Q) staff expense to employees. Giroud and Mueller (2010) find that
Sloth = Sales per Overhead Input Ln(Wage) overhead costs, input costs, and employee wage all increase once
employee expense costs managers are insulated from competition and the takeover market.
(1) (2) (3) (4) As the results using tariff_import, tariff_export, and tariff_rank are
Dual  post89  tariff_rank 0.026a 0.027a 0.026a 0.005 similar, we tabulate regression results only for tariff_rank.
(0.003) (0.002) (0.002) (0.834) As Table 9 shows, our results hold after controlling for different
Post89  tariff_rank 0.022b 0.007 0.053b 0.048
measures of sloth, with the exception of employee wage.
(0.034) (0.591) (0.023) (0.852)
Sloth  post89  tariff_rank 0.112a 0.026 0.088a 0.003 dual  post89  tariff_rank is insignificant in the wage regression,
(0.003) (0.542) (0.009) (0.906) likely because the number of observations is small. Many firms
Sloth  post89 0.047 0.147 0.158b 0.004 do not report staff expense thereby reducing the number of obser-
(0.587) (0.162) (0.024) (0.916)
vations in the wage regression by nearly 90%. In the regressions of
Sloth 0.031 0.486a 0.126b 0.097c
(0.787) (0.000) (0.039) (0.091)
other proxies for sloth, dual  post89  tariff_rank is highly signifi-
Firm size 0.095a 0.078a 0.097a 0.102b cant. Further, the coefficient size is similar to that in the baseline
(0.000) (0.000) (0.000) (0.025) model in Column (3) of Table 4. Firms that increase employee turn-
ROA 1.027a 1.194a 0.965a 1.062a over and lower input costs after the 1989 FTA experience a larger
(0.000) (0.000) (0.000) (0.000)
increase in Tobin’s Q. These results are consistent with the prevail-
ROAt1 0.191a 0.218a 0.200a 0.431b
(0.000) (0.000) (0.000) (0.024) ing view that competition promotes efficiency. Importantly, the
ROAt2 0.073c 0.094b 0.064 0.066 economic impact of dual leadership is larger than those proxies
(0.093) (0.035) (0.144) (0.684) for sloth. For example, Column (1) suggests that duality firms with
R&D ratio 0.702a 0.498a 0.722a 0.152 a tariff rank of two experience an increase in Tobin’s Q that is 2.61%
(0.000) (0.005) (0.000) (0.763)
Debt ratio 0.014 0.024 0.010 0.173
higher than duality firms with a tariff rank of one. For comparison,
(0.721) (0.532) (0.793) (0.238) an improvement of 10 percentage points in sales per employee is
Volatility 0.113a 0.102a 0.124a 0.001 associated with an increase of 1.12% in Tobin’s Q. (Measures of
(0.000) (0.000) (0.000) (0.992) sloth are in decimals.)14
Firm fixed effects Yes Yes Yes Yes
Year fixed effects Yes Yes Yes Yes
#Obs 24,857 23,330 25,246 2,682
F-value 61.19 57.03 61.41 17.21 6. Additional results
Adj. R-squared 0.643 0.633 0.640 0.695

This table presents regression estimation of the impact of dual leadership on firm
performance, after adding the potential effect of efficiency gains due to increased
competition. We winsorize sales per employee, overhead costs, and the ratio of the
costs of goods sold at the 1% level at both tails and use the natural logarithm of
wage to mitigate the outlier problem. See Table 1 for variable definition and
description. We estimate all models controlling for heteroskedasticity and firm-
level clustering. p-values are reported in parentheses below the coefficient
estimates.
a
Significance at the 1% level.
b
Significance at the 1% level.
c duality firms. In such a case, our results may arise from a survival
Significance at the 10% level.
for the strength of corporate governance. As the SEC Compact Disclo-
sure Database does not have detailed institutional ownership data,
we obtain the data needed for our regression analysis in this section
from the Thomson-Reuters Institutional Holdings (13F) Database. As
Table 8 shows, we find that the positive effect of dual leadership is
larger and more significant for firms with strong corporate gover-
nance than for firms with weak corporate governance. Therefore,
the results do not support the agency cost reduction argument.
Our findings are consistent with Morck et al. (2000) and Amore
and Zaldokas (2012), who find that firms with weak corporate gov-
ernance perform poorly when competition intensifies.
5.4. A horse race between dual leadership and efficiency gains
The literature is replete with empirical evidence that ‘‘competi-
tion is the enemy of sloth’’ (Nickell, 1996, p. 724; Bertrand and
Mullainathan, 2003). Therefore, it is instructive to examine whether
the duality effect remains when we consider efficiency gains due to
increased competition. For this test, we run a horse race by adding
to the baseline model various proxies for sloth including sales per
employee, overhead costs, input costs, and employee wage. Sales
per employee is a turnover ratio that directly measures
employee productivity and is a common proxy for firm efficiency
6.1. Duality effect or survival bias
Studies have found that CEOs with more decision-making
power are associated with more variable firm performance
(Adams et al., 2005). If duality firms experience larger variances
in firm performance, then a sudden change in firms’ competitive
environments may disproportionately eliminate a larger number
of poorly performing duality firms than poorly performing non-
bias instead of a detection of true performance enhancement due
to dual leadership. To assess this possibility, we study corporate
failure rate. If we do not find a disproportionately higher corporate
failure rate for duality firms than non-duality firms among those
that are affected by trade liberalization, then the survival bias is
not a concern for our results.
We construct the sample of failed firms using two different
approaches. The first approach uses Compustat and CRSP. Specifi-
cally, we first identify our sample firms that file for Chapter 7 or
Chapter 11 bankcruptcy using Compustat data item ‘STALT.’ We
find 42 unique firms. We then verify Compustat bankruptcy
records against CRSP delisting data, namely whether CRSP data
item HDLRSN is coded ‘‘02’’ or ‘‘03.’’ A code of ‘‘02’’ indicates that
the firm is in bankruptcy, while ‘03’ indicates liquidation. Since a
firm can continue to have stock price data after filing for bank-
ruptcy, a large gap sometimes exists between the delisting date
in CRSP and the date of the last financial statement in Compustat.
14
As a robustness check, we exclude dual  post89  tariff_rank from the regressions
and re-estimate the effect of sloth  post89  tariff_rank. The idea is that if
dual  post89  tariff_rank and sloth  post89  tariff_rank are highly correlated, it may
cause a downward bias in the estimated coefficient of sloth  post89  tariff_rank. We
do not find such is the case; we find that the coefficient estimate of
sloth  post89  tariff_rank is stable. For example, when we re-run the regression in
Column (1) excluding dual  post89  tariff_rank, sloth  post89  tariff_rank is 0.113
with 1% significance.
546 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552

Table 10
Corporate failure rates.

Impacted by the 1989 FTA Not impacted by the 1989 FTA

Duality firms Non-duality firms Duality firms Non-duality firms
Total Bankrupt (%) Total Bankrupt (%) Total Bankrupt (%) Total Bankrupt (%)
firms firms firms firms firms firms firms firms
Panel A: Using Compustat and CRSP
1988 575 3 341 1 311 1 157
1989 617 381 1 355 188
1990 646 1 410 2 371 208 1
1991 678 437 7 389 8 223 8
1992 668 5 424 2 395 4 237 6
1993 652 5 407 2 392 6 227 1
1994 629 5 384 1 386 2 223 3
1995 610 361 2 369 2 215 4
1996 586 4 336 344 3 197 5
1997 550 2 313 4 313 11 175 4
1998 506 2 284 3 271 3 142 1
1989–1998 6142 24 0.39% 3737 24 0.64% 3585 39 1.09% 2035 33 1.62%
Chi-square test on failure rates between duality and non-duality firms, 1990–1998
Impacted by the 1989 FTA Not impacted by the 1989 FTA
Chi-square value (p-value) 2.82 (0.09c) 2.50 (0.11)
Continuity adjusted Chi-square value (p-value) 2.42 (0.12) 0.20 (0.15)

Panel B: Using a proprietary bankruptcy database

1991 678 437 3 389 7 223 8
1992 668 3 424 2 395 7 237 3
1993 652 7 407 4 392 5 227 2
1994 629 3 384 1 386 1 223 2
1995 610 2 361 1 369 3 215 3
1996 586 6 336 1 344 1 197 5
1997 550 2 313 313 4 175 1
1998 506 3 284 5 271 8 142 3
1991–1998 4879 26 0.53% 2946 17 0.58% 2859 36 1.26% 1639 27 1.65%
Chi-square test on failure rates between duality and non-duality firms, 1991–1998
Impacted by the 1989 FTA Not impacted by the 1989 FTA
Chi-square value (p-value) 1.14 (0.29) 0.07 (0.80)
Continuity adjusted Chi-square value (p-value) 0.87 (0.35) 0.01 (0.92)

This table presents corporate failure rates partitioned by whether a firm is affected by the 1989 FTA (i.e., tariff_rank > 0 or tariff_rank = 0). Panel A presents corporate failure
rates from 1988 to 1998, because to study the impact of the 1989 FTA we require sample firms to have Compustat data in 1988. We compile corporate failure rates using
Compustat and CRSP. Specifically, we first identify our sample firms that file for Chapter 7 or Chapter 11 using the Compustat data item, ‘STALT.’ We find 42 unique firms. We
then verify Compustat bankruptcy records against CRSP delisting data, namely whether CRSP data item HDLRSN is coded ‘‘02’’ or ‘‘03.’’ We treat a delisting firm as failed if the
gap between the delisting date in CRSP and the date of the last financial statement in Compustat is less than or equal to four years. We identify an additional 83 unique
bankrupt firms using this process. Panel B reports corporate failure rates using data from a proprietary bankruptcy database, which contains all bankruptcies filed by U.S.
publicly traded firms and the bankruptcy filing dates from 1991 to 1998. We obtain the data from Lemmon et al. (2009).
a
Significance at the 1% level.
b
Significance at the 5% level.
c
Significance at the 10% level.

For our sample, the mode of this gap is three years, with a
maximum of 14. To ensure that we robustly test the survival bias
concern, we want to be as aggressive as possible in identifying cor-
porate failures for our sample period. Thus, we treat a delisting
firm as failed during our sample period if the gap is less than or
equal to four years between the delisting date in CRSP and the date
of the last financial statement in Compustat. Seventy-five percent
of our sample firms are delisted within four years of the last finan-
cial statement. We identify an additional 83 unique bankrupt firms
using this process. Altogether, we identify 125 corporate failures
from 1988 to 1998 or 120 corporate failures post trade liberaliza-
tion (1989–1998). We use the year of the last financial statement
as the year in which the firm fails. We report corporate failure rates
using the first approach for the sample period of 1988–1998 in
Table 10 Panel A. We choose 1988 as the starting year, because
to study the impact of the 1989 FTA we require sample firms to
have financial data in 1988.
As the first approach is a crude way to identify corporate fail-
ures (e.g., it does not have precise bankruptcy dates and may not
include all bankruptcies or may incorrectly include non-bank-
ruptcy events), we construct the second sample of failed firms
using a proprietary database.15 The advantage of this database is
that it contains all bankruptcies filed by U.S. listed firms and the
bankruptcy filing dates. The disadvantage is that it covers only part
of the sample period, 1991–1998. However, this partial coverage
should not be a concern, as we care about corporate failures in years
after trade liberalization much more than in years before. We report
the time trend of corporate failure rates using the second approach
in Table 10 Panel B.
To provide another benchmark, we report corporate failure rate
for firms not impacted by the 1989 FTA. If the relative failure rates
of duality vs. non-duality firms that are impacted by the FTA are
similar to the relative failure rates of duality vs. non-duality firms
that are not impacted by the FTA, then it provides additional assur-
15
For more details about this database, please refer to Lemmon et al. (2009). We
deeply appreciate and thank Yung-Yun Ma for his generosity in sharing with us his
manually-collected data.
 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552 547

ance that survival bias is not a concern to our study. As Table 10
shows, the two approaches tell a consistent story. Of the firms
impacted by the FTA, duality firms do not have a higher failure rate
than non-duality firms post trade liberalization. Additionally, the
relative failure rates of duality vs. non-duality firms that are
impacted by the FTA are similar to the relative failure rates of dual-
ity vs. non-duality firms that are not impacted by the FTA. We
observe similar patterns when we separately analyze firms
impacted by import and export tariff concessions. In summary,
survival bias does not appear to drive our results.
6.2. Event study results
In untabulated analysis, we conduct an event study to assess the
market perception of the value contribution of dual leadership
when the FTA came into effect. As there are no clear event dates,
we follow the long-run event study methodology in Chhaochharia
and Grinstein (2007) and Wintoki (2007) and calculate excess
portfolio returns for four different event windows. If the market
perceives that the FTA benefits duality firms more than non-duality
firms, then a position long in the portfolio of duality firms and short
in the portfolio of non-duality firms should yield positive returns.
We fail to find significant returns for this long-short trading
strategy for all the event windows. One reason for the non-results
could be that negotiations regarding the FTA encapsulate an event
that spans too long a period for this method of an event study to
detect any significant effect. It could also be that the U.S. stock
market did not view the implementation of the 1989 FTA as a sig-
nificant event. A free-trade regime between the U.S. and Canada
had been on the working agendas of both governments since the
early 1900s. Canadian Prime Minister formally requested that the
U.S. and Canada explore the possibility of a comprehensive free
trade agreement on September 26, 1985. Although the 1989 FTA
was extremely contentious in Canada to the extent that the 1988
general election was largely fought on this single issue, the FTA
did not garner much attention in the U.S. It passed without any
fanfare in the House by a vote of 366 to 40 and in the Senate by a
vote of 83 to nine. In fact, polls show that up to 40% of Americans
were unaware that the FTA had been signed compared to 3% of
Canadians.
6.3. The instrumental-variable (IV) approach
Up until now, we take the advantage of the exogenous shock of
the 1989 FTA and apply the differences-in-differences methodology
to overcome the endogeneity of the relation between CEO duality
and firm performance. To provide a portfolio of evidence, we
identify two alternative situations in which a firm’s competitive
environment changes and use the instrumental-variable (IV)
approach to analyze the duality–performance relation.
In the first situation, we use changes in the Herfindahl–Hir-
schman Index (HHI) to identify changes in competitive environ-
ments. HHI is a well-grounded proxy for product market
competition (Giroud and Mueller, 2010). HHI is computed as
the sum of squared market shares based on sales of a firm’s
three-digit SIC industry. Thus, a lower HHI indicates more
intense competition. We compare this year’s HHI to the previous
year’s and rank the differences in HHI into quintiles (our results
hold if using deciles). The rationale for using sub-groups of firms
that experience various degrees of HHI changes is twofold. First,
a change in industry-level competition is likely exogenous to an
individual firm. Second, a causal relation can be more sharply
tested by discriminating among sub-groups when the endoge-
nous regressor is expected to exert a different influence on the
dependent variable across the sub-groups (Zingales, 1998;
Benmelech and Bergman, 2011). If dual leadership is beneficial
to firm performance when competition intensifies, we should
expect to find a more positive impact of CEO duality for firms

Table 11
Impact of dual leadership on Tobin’s Q – robustness check, using the instrumental-variable (IV) approach.

Dep. var. = Ln(Tobin’s Q) Rank 1 Rank 2 Rank 3 Rank 4 Rank 5

More Competitive ? Less
(1) (2) (3) (4) (5)
Panel A: Use changes in HHI to identify changes in the competitive environment
ChairCEO 0.336c 0.015 0.129 0.005 0.028
(0.058) (0.945) (0.506) (0.965) (0.806)
Firm size 0.062a 0.106a 0.152a 0.097a 0.105a
(0.009) (0.000) (0.000) (0.000) (0.000)
ROA 0.851a 0.824a 1.018a 1.098a 0.766a
(0.000) (0.000) (0.000) (0.000) (0.000)
ROAt1 0.088 0.172 0.239c 0.159 0.417a
(0.493) (0.189) (0.093) (0.306) (0.003)
ROAt2 0.226c 0.047 0.175 0.125 0.149
(0.062) (0.695) (0.158) (0.368) (0.300)
Past 3-year sales growth rate 0.134a 0.285a 0.347a 0.342a 0.236a
(0.011) (0.000) (0.000) (0.000) (0.000)
Debt ratio 0.071 0.047 0.103 0.236a 0.037
(0.398) (0.636) (0.333) (0.012) (0.699)
Volatility 0.068 0.110a 0.030 0.080 0.044
(0.172) (0.015) (0.598) (0.116) (0.348)
HHI 0.249a 0.177 0.282b 0.400a 0.084
(0.004) (0.258) (0.016) (0.011) (0.316)
Firm fixed effects Yes Yes Yes Yes Yes
Year fixed effects Yes Yes Yes Yes Yes
#Obs 2461 3038 2642 2689 2423
F-value 8.40 14.89 10.30 10.75 12.24
R-squared 0.120 0.212 0.205 0.238 0.209
IV identification tests
Under-identification test (p-value) 0.000 0.001 0.000 0.000 0.000
Kleibergen–Paap weak identification F-statistics 12.99 8.25 16.76 29.81 13.41
Hansen’s over-identification test (p-value) 0.669 0.113 0.265 0.553 0.565
548 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552

Table 11 (continued)

Dep. var. = Ln(Tobin’s Q) Firm changed industry Firm did NOT change industry
New industry is more competitive New industry is less competitive
(1) (2) (3)
Panel B: Use changes in the primary SIC code to identify changes in the competitive environment
ChairCEO 0.408b 0.104 0.067
(0.021) (0.841) (0.379)
Firm size 0.196b 0.126 0.092a
(0.051) (0.519) (0.000)
ROA 0.075 1.393a 0.942a
(0.919) (0.000) (0.000)
ROAt1 0.472 0.374 0.192a
(0.386) (0.482) (0.000)
ROAt2 2.630a 0.777 0.106b
(0.000) (0.599) (0.034)
Past 3-year sales growth rate 0.172 0.939a 0.260a
(0.256) (0.000) (0.000)
Debt ratio 0.159 1.021a 0.057
(0.701) (0.000) (0.179)
Volatility 0.686a 0.364a 0.056a
(0.000) (0.005) (0.011)
HHI 1.215 0.146 0.004
(0.163) (0.598) (0.935)
Firm fixed effects Yes Yes Yes
Year fixed effects Yes Yes Yes
#Obs 54 59 17,680
F-value 7.47 29.51 54.48
R-squared 0.357 0.825 0.182
IV identification tests
Under-identification test (p-value) 0.101 0.343 0.000
Kleibergen–Paap weak identification F-statistics 17.83 0.79 61.89
Hansen’s over-identification test (p-value) 0.942 0.190 0.860

This table presents the results from the second stage estimation when we use the IV approach to analyze the impact of CEO duality on Tobin’s Q conditioning on the level of product
market competition. We instrument for CEO duality using the natural logarithm of CEO age and the mean value of the fraction of outside directors on the board of other firms in the
same three-digit SIC industry in a given year. In Panel A, we use changes in the Herfindahl–Hirschman Index (HHI) to identify changes in the competitive environment. HHI is
calculated as the sum of squared market shares based on sales of a firm’s three-digit SIC industry. For estimation consistency, we compute HHI if there are at least five firms in the
three-digit SIC industry. We compare this year’s HHI to the previous year’s and rank the differences in HHI into quintiles. Rank 1 indicates the quintile in which firms experienced
the largest decrease in HHI or the highest increase in competition intensity. Rank 5 indicates that firms experienced the largest increase in HHI or the steepest decline in
competition intensity. In Panel B, we use changes in the primary SIC code to identify changes in competition. To maximize the number of observations, we use changes in four-
digit SIC codes. Correspondingly, we calculate the HHI as the sum of squared market shares based on sales of a firm’s four-digit SIC industry, if the industry has at least five firms.
Firms that changed their primary SIC codes year-over-year are grouped into the sub-sample of ‘‘Firm changed industry,’’ while firms that did not are grouped into the sub-sample of
‘‘Firm did NOT change industry.’’ We compare the HHI of the industry into which the firm moved to the HHI of the industry from which the firm moved. A lower HHI indicates an
increase in competition intensity (i.e., New industry is more competitive). A higher HHI indicates a decrease in competition intensity (i.e., New industry is less competitive). ChairCEO
is a dummy variable that takes the value of one if the CEO is the Chairman of the Board. See Table 1 for definition and description of other variables. Regressions control for
heteroskedasticity and firm-level clustering. p-values are reported in parentheses below the coefficient estimates.
a
Significance at the 1% level.
b
Significance at the 5% level.
c
Significance at the 10% level.

that experience a larger increase in competition intensity (or a
larger decrease in HHI).
In the second situation, we use a change in a firm’s primary SIC
code to identify a change in product market competition. Although
a change in the industry code is a significant event, it comes with
two disadvantages. First, even if we use four-digit SIC codes, only
three percent of the firms changed the primary SIC code during
the sample period, resulting in a limited number of observations
in certain regressions (Table 11 Panel B Columns (1) and (2)). Sec-
ond, a decision to move into or out of an industry is likely an
endogenous one. Nevertheless, we believe that using SIC-code
changes adds to the portfolio of evidence that we intend to gather
for our research question. A firm can move into a new industry that
is more competitive than its old one, or it can move into a less com-
petitive industry. Since we expect CEO duality to have a different
impact on firm performance across the two types of firms, we dis-
tinguish between the two types by comparing the new industry’s
HHI with the old industry’s HHI.
We instrument for CEO duality by using CEO age (computed as
the natural logarithm of CEO age) and an industry average of the
fraction of outside directors (computed as the mean value of the
fraction of outside directors on the board of other firms in the same
three-digit SIC industry in a given year). To qualify for a valid
instrument, there must be (1) a strong correlation with the instru-
mented regressors and (2) orthogonality with the error term. In
terms of CEO age, Linck et al. (2008) show that the likelihood of
a CEO being the COB is significantly and positively related to CEO
age. Additionally, it is not obvious that CEO age directly influences
firm performance. We choose the industry average as another
instrument by following the literature. Numerous papers have
used industry averages as IV (e.g., Faulkender and Petersen,
2005; Laeven and Levine, 2009; Lin et al., 2011). The rationale is
that a firm’s characteristic (in our case board attributes) is likely
to correlate with their peers’ due to similar business mix and
investment opportunities, but the industry average is unlikely to
directly influence firm performance. The suitability of our instru-
ments is confirmed by various identification tests reported in
Table 11. Under- and weak-identification tests indicate that the
instruments correlate sufficiently with the endogenous regressor.
The Hansen’s over-identification test suggests that the instruments
perform well, leading us not to reject the null of instrument
suitability.
Table 11 Panel A reports the results from the second stage IV
estimation when we use year-over-year changes in HHI to identify
 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552
changes in competition intensity. Consistent with our expectation
and earlier differences-in-differences results, the positive impact
of CEO duality is largest and statistically significant only for firms
that experienced the steepest increase in competition intensity. As
competition intensity decreases, CEO duality seems to have a
negative impact on Tobin’s Q, albeit without any statistical
significance. Panel B reports the results from the second stage IV
estimation when we use changes in the primary SIC code to iden-
tify changes in competition intensity. Again consistent with our
expectation and earlier results, the coefficient estimate of CEO
duality is largest and statistically significant only for firms that
moved to more competitive industries. Additionally, the
magnitude of the positive impact of CEO duality appears to
decrease monotonically with the extent of changes in competition
intensity.
In summary, using an alternative approach to address the end-
ogeneity of the duality–performance relation, we find that CEO
duality is beneficial to firm performance when competition
intensifies.
7. Conclusion and discussion
Despite the vast literature on board leadership, the evidence on
the relation between CEO duality and firm performance is mixed
due to endogeneity challenges. In this paper, we employ a new
framework that mitigates these challenges and find that dual lead-
ership is beneficial to firm performance when competition intensi-
fies. Further, the positive effect of dual leadership is larger when
firms have high levels of information costs and better corporate
governance.
Our results shed light on some seemingly puzzling phenomena
in practice. Firms have been under enormous pressure to abolish
CEO duality for over two decades. While firms in other countries
seem to be more amicable to the idea, U.S. firms have been reluc-
tant to change. For example, in the late 1980s, a majority of U.K.
firms combined the CEO and COB titles (Dahya et al., 2009). Now,
less than 5% of U.K. firms still do. In contrast, the majority of U.S.
firms still have a dual leadership structure. Certain investors are
also less enthusiastic about splitting the CEO and COB titles than
some other governance initiatives. For instance, Morgan et al.
(2011) find that mutual funds support 90% of the shareholder pro-
posals that aim to declassify the board, but support only 34% of the
proposals that call to separate the CEO and COB titles. Our findings
help explain the reluctance on the part of U.S. firms and certain
investors to embrace separate titles. Our results also complement
Bloom and Van Reenen (2007), who find that the U.S. has the best
management practice of the four countries (U.S., U.K., France and
Germany) surveyed. Bloom and Van Reenen also find that poor
management practice is more prevalent when product market
competition is weak and that the U.S. has the most competitive
market.
One limitation of our study is that we do not distinguish
amongst non-CEO Chairmen (e.g., whether the Chairman is a for-
mer or present employee of the firm or is an independent director).
This limitation is attributable partially to data availability and par-
tially to the fact that the practice of having an independent chair is
a recent phenomenon. Firms made the noticeable move to adopt
the practice of independent chairman after the passage of the Sar-
banes–Oxley Act of 2002. By 2007, just 13% of S&P500 firms have a
truly independent COB. Despite the data limitation, we believe that
our results are useful in understanding the existing literature,
which has historically defined the board leadership structure sim-
ilar to this paper. Our results are also useful in explaining corporate
behaviors during our sample period as well as at the present time.
549
As we mentioned earlier, the majority of U.S. firms still combine
the CEO and COB titles.
Our results highlight the link between the identity of the COB
and his influence on firm performance. Prior literature has long
argued that CEOs possess unparalleled firm-specific information,
which gives them a unique advantage over non-CEO chairmen
in leading the firm. We provide evidence explicitly linking infor-
mation costs to the positive impact of dual leadership on firm
performance. Favaro et al. (2010) report that ‘‘[a]t the outset of
the decade [2000], roughly half of the North American and Euro-
pean CEOs entering office were named chairman and CEO. In
2009s incoming class, that number had fallen to 16.5% in North
America and 7.1% in Europe.’’ The current push towards more
independent chairmen will inevitably result in a more heteroge-
neous distribution of non-CEO chairmen. Future work is needed
to understand the identities and different incentives of newly
minted chairmen, as well as how different types of chairmen
may have different impacts on firm performance and corporate
polices.
Acknowledgements
We would like to thank Yung-Yu Ma and David Yermack for
their generosity in sharing their data with us. We also thank
Russell Chomiak, Paul Hanouna, Wan Hong, Steve Miller, Nancy
Margolis, Shawn Mobbs, David Oesch, Sukesh Patro, Jesus Salas,
Bin Wang, and the seminar participants at the 2011 Asian
Finance Association International Conference, the 2011 Financial
Management meetings, the 2013 Conference of the Swiss Soci-
ety for Financial Market Research, the 2013 Conference
‘‘Twenty Years after Cadbury, Ten Years after Sarbanes-Oxley:
Challenges of Corporate Governance,’’ the 2013 International
Finance and Banking Society Nottingham Conference, Lehigh
University, and Villanova University. We wish to thank two
anonymous referees and the editors of the Journal of Banking
and Finance. We gratefully acknowledge support from the Cen-
ter for Global Leadership and the Falvey Memorial Library at
Villanova University.
Appendix A. Examples of arguments made by firms in support
of dual leadership
Argument 1: COB selection is part of the succession planning
process. The CEO is the best person to set board agenda.
Honeywell, Inc., in its 2003 proxy statement, notes that
‘‘[t]he Company has no fixed rule as to whether these offices
should be vested in the same person or two different people,
or whether the Chairman should be an employee of the
Company or should be elected from among the non-employee
directors. The Board believes that this issue is part of the suc-
cession planning process and that it is in the best interests of
the Company to make such a determination when it elects a
new CEO. Under Honeywell’s Corporate Governance Guidelines,
the Chairman establishes the agenda for each Board meeting.
The Board believes that the CEO is in the best position to
develop this agenda from among the many short-term and
long-term issues facing Honeywell.’’
available at http://www.sec.gov/Archives/edgar/data/773840/
000095011703000983/a34157.txt.
Argument 2: Dual leadership provides clarity regarding the
leadership of the firm.
In their statement to oppose a shareholder proposal calling for a
separate COB and CEO filed at the 2010 annual shareholder meet-
ing, the board of directors of Goldman Sachs reasons that ‘‘. . .[t]he
most effective leadership model for our firm at this time is to have
550 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552

the roles of CEO and Chairman combined. . . this structure helps to
ensure clarity regarding leadership of the firm, allows the firm to
speak with one voice and provides for efficient coordination of
Board action, particularly in times of market turmoil or crisis.
The combination of the Chairman’s ability to call and set the
agenda for Board meetings with the CEO’s intimate knowledge of
our business, including our risk management framework, provides
the best structure for the efficient operation of our Board process
and effective leadership of our Board overall. This structure avoids
potential confusion as to leadership roles and duplication of efforts
that can result from the roles being separated, especially in com-
plex firms like ours where the information necessary to make crit-
ical decisions is often in flux.’’
available at http://www.sec.gov/Archives/edgar/data/886982/
000119312510078005/ddef14a.htm.
Argument 3: Dual leadership promotes more effective business
planning and execution.
Office Depot, in their 2009 proxy statement, states that ‘‘[t]he
Board has given careful consideration to separating the roles of
Chairman and Chief Executive Officer and has determined that
the Company and its shareholders are best served by having
Mr. Odland, serve as both Chairman of the Board and Chief Execu-
tive Officer. Mr. Odland’s combined role as Chairman and Chief
Executive Officer promotes unified leadership and direction for
the Board and executive management and it allows for a single,
clear focus for the chain of command to execute the Company’s
strategic initiatives and business plans.
available at http://www.sec.gov/Archives/edgar/data/800240/
000119312509050893/ddef14a.htm.

Appendix B. Top 20 U.S. industries with highest import and export tariff rates, 1986–1988

Four-digit SIC Industry description Average tariffs (%)

Import tariff
3021 Rubber and Plastics Footwear 36.06
0182 Food Crops Grown Under Cover 33.40
2342 Brassieres, Girdles, and Allied Garments 29.13
2326 Men’s and Boys’ Work Clothing 28.88
2075 Soybean Oil Mills 22.49
2321 Men’s and Boys’ Shirts, Except Work Shirts 21.90
2325 Men’s and Boys’ Separate Trousers and Slacks 21.06
2331 Women’s, Misses’, and Juniors’ Blouses and Shirts 20.86
2335 Women’s, Misses’, and Juniors’ Dresses 20.14
3253 Ceramic Wall and Floor Tile 20.00
2311 Men’s and Boys’ Suits, Coats, and Overcoats 19.97
2111 Cigarettes 19.33
2337 Women’s, Misses’, and Juniors’ Suits, Skirts, and Coats 18.11
2369 Girls’, Children’s, and Infants’ Outerwear, Not Elsewhere Classified 18.10
2252 Hosiery, Not Elsewhere Classified 16.81
2231 Broadwoven Fabric Mills, Wool (Including Dyeing and Finishing) 16.53
2381 Dress and Work Gloves, Except Knit and All-Leather 14.99
2257 Weft Knit Fabric Mills 14.69
3262 Vitreous China Table and Kitchen Articles 14.68
3151 Leather Gloves and Mittens 14.56

Export tariff
2082 Malt Beverages 48.32
2259 Knitting Mills, Not Elsewhere Classified 24.33
3151 Leather Gloves and Mittens 24.33
2381 Dress and Work Gloves, Except Knit and All-Leather 24.33
2369 Girls’, Children’s, and Infants’ Outerwear, Not Elsewhere Classified 24.26
2335 Women’s, Misses’, and Juniors’ Dresses 24.22
2361 Girls’, Children’s, and Infants’ Dresses, Blouses, and Shirts 24.10
2331 Women’s, Misses’, and Juniors’ Blouses and Shirts 23.73
2386 Leather and Sheep-Lined Clothing 23.59
2329 Men’s and Boys’ Clothing, Not Elsewhere Classified 23.51
2321 Men’s and Boys’ Shirts, Except Work Shirts 23.43
2311 Men’s and Boys’ Suits, Coats, and Overcoats 23.13
2342 Brassieres, Girdles, and Allied Garments 22.99
2391 Curtains and Draperies 22.75
2253 Knit Outerwear Mills 22.69
2337 Women’s, Misses’, and Juniors’ Suits, Skirts, and Coats 22.20
3021 Rubber and Plastics Footwear 22.01
3142 House Slippers 22.01
3143 Men’s Footwear, Except Athletic 22.01
3144 Women’s Footwear, Except Athletic 22.01
 T. Yang, S. Zhao / Journal of Banking & Finance 49 (2014) 534–552 551

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