This paper develops a model in which the effectiveness of the board's monitoring of the CEO depends on the board's structure or composition. The independence of new directors is determined through a bargaining process between the existing directors and the CEO. The CEO's bargaining position, and thus his influence over the board-selection process, depends on an updated estimate of the CEO's ability based on his prior performance. Many empirical findings about board structure and performance arise as equilibrium phenomena in this model. We also explore the implications of this model for proposed regulations of corporate governance structures.

Abstract not found

Shareholder rights vary across �rms. Using the incidence of 24 governance rules, we construct a “Governance Index ” to proxy for the level of shareholder rights at about 1500 large �rms during the 1990s. An investment strategy that bought �rms in the lowest decile of the index (strongest rights) and sold �rms in the highest decile of the index (weakest rights) would have earned abnormal returns of 8.5 percent per year during the sample period. We �nd that �rms with stronger shareholder rights had higher �rm value, higher pro�ts, higher sales growth, lower capital expenditures, and made fewer corporate acquisitions. I.

We survey the evidence on the relationship between board composition and firm performance. Boards of directors of American public companies that have a majority of independent directors behave differently, in a number of ways, than boards without such a majority. Some of these differences appear to increase firm value; others may decrease firm value. Overall, within the range of board compositions present today in large public companies, there is no convincing evidence that greater board independence correlates with greater firm profitability or faster growth. In particular, there is no empirical support for current proposals that firms should have "supermajority-independent boards " with only one or two inside directors. To the contrary, there is some evidence that firms with supermajority-independent boards are less profitable than other firms. This suggests that it may be useful for firms to have a moderate number of inside directors (say three to five on an average-sized eleven member board). We offer some possible explanations for these results, based on board dynamics, the informational advantages possessed by inside (and, often, affiliated) directors, and the value of interaction between different types of directors who bring different strengths to the board. published in

We study whether CEO involvement in the selection of new directors influences the nature of appointments to the board. When the CEO serves on the nominating committee or no nominating committee exists, firms appoint fewer independent outside directors and more gray outsiders with conflicts of interest. Stock price reactions to independent director appointments are significantly lower when the CEO is involved in director selection. Our evidence may illuminate a mechanism used by CEOs to reduce pressure from active monitoring, and we find a recent trend of companies removing CEOs from involvement in director selection. A BOARD OF DIRECTORS SERVES AS THE PIVOTAL mechanism for monitoring the managers of a public corporation. Directors are voted into office by stockholders and have a fiduciary responsibility to protect stockholders ’ interests. Along with their legal duties of reviewing the corporation’s major plans and actions, directors are charged with selecting, compensating, evaluating, and, when appropriate, dismissing top managers.

We examine the equity ownership structure and board composition of a sample of 583 "rms over the ten-year period 1983}1992. Our evidence suggests that a substantial fraction of "rms exhibit large changes in ownership and board structure in any given year. These changes are correlated with one another and are not reversed in subsequent years. Ownership and board changes are strongly related to top executive turnover, prior stock price performance, and corporate control threats, but only weakly related to changes in "rm-speci"c determinants of ownership and board structure. Furthermore, large ownership changes are typically preceded by economic shocks and followed by asset restructurings. � 1999 Elsevier Science S.A. All rights reserved.

Executives can only impact …rm outcomes if they have in‡uence over crucial decisions. Based on this idea we develop and test the hypothesis that …rms whose CEOs have more decision-making power should experience more variability in performance. We construct proxies for the CEO’s power to in‡uence decisions and show that stock returns are signi…cantly more variable for …rms run by powerful CEOs. We …nd similar results using alternative measures of performance. These …ndings suggest that the interaction between executive characteristics and organizational variables may have important consequences for …rm performance. 1 In some …rms the CEO makes all the major decisions. In other …rms decisions are more clearly the product of consensus among the top executives. The distribution of decision-making power within …rms should therefore a¤ect which decisions are made. Managerial decisions may or may not a¤ect …rm outcomes, but if they do, both executive characteristics and organizational variables should be important determinants of …rm performance.

We present evidence that busy outside directors are associated with weak corporate governance based on a sample of U.S. industrial firms from 1989 to 1995. When a majority of outside directors serve on three or more boards, firms exhibit lower market-to-book ratios as well as weaker operating profitability. Firms are also more likely to replace busy outside directors following poor performance. We show that when a majority of outside directors are busy, the sensitivity of CEO turnover to performance is significantly lower than when a majority of outside directors are not busy. Analysis of announcements of board changes confirms that investors applaud departures of busy outside directors, and this pattern is pronounced for firms where the departure results in the majority of the remaining outside directors being not busy.

Abstract not found

Do outside directors on corporate boards make a difference in firm performance during institutional transitions? What leads to the practice of appointing outside directors in the absence of legal mandate? This article addresses these two important questions by drawing not only on agency theory, but also resource dependence and institutional theories. Taking advantage of China’s institutional transitions, our findings, based on an archival database covering 405 publicly listed firms and 1211 company–years, suggest that outsider directors do make a difference in firm performance, if such performance is measured by sales growth, and that they have little impact on financial performance such as return on equity (ROE). The results also document a bandwagon effect behind the diffusion of the practice of appointing outsiders to corporate boards. The article not only highlights the need to incorporate multiple theories beyond agency theory in corporate governance research, but also generates policy implications in light of the recent trend toward having more outside directors on corporate boards in emerging economies. Copyright © 2004 John Wiley & Sons, Ltd. Do outside directors on corporate boards make a difference in firm performance? Agency theory suggests that a board comprised of a greater proportion of outside directors, due to their presumed independence, may theoretically lead to better firm performance (Jensen and Meckling, 1976; Shleifer and Vishny, 1997). However, empirical researchers report that overall, there is little significant relationship between outside directors and firm performance (Dalton et al., 1998; Finkelstein and Hambrick, 1996). Consequently, Dalton et al. (1998: 285) argue that ‘consideration of multiple theories [beyond agency theory]... may lead to a more complete understanding. ’ We agree, and add that Key words: outside directors; firm performance; institutional transitions; China