This study intends to examine the conditions under which firms with chair-CEO separation can benefit more from this governance practice and achieve higher firm performance. We argue that to facilitate chair’s effective monitoring and advising of CEO, which is the desired value of chair-CEO separation, it is necessary for firms to formalize chair’s authority position. Accordingly, we predict that in a firm with chair-CEO separation, formalization of chair’s authority position is positively related to firm performance. Meanwhile, we argue that the performance effect of this formal force is subject to the influence of informal forces between chair and CEO. Particularly, we expect that the association between formalization of chair’s authority position and firm performance is strengthened when chair and CEO share demographic similarity that engenders mutual attraction or when they differ in achievement status in a way that supports chair’s eligibility. Analysis of data from an unbalanced panel of 272 S&P 500 companies with 1679 observations from 2010 to 2019 supports our hypotheses. The results indicate that chair-CEO separation is a nuanced phenomenon and deserves finer-grained research attention.

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