Ownership concentration, monitoring, and optimal board structure

Clara Graziano and Annalisa Luporini ()

Economics Bulletin, 2012, vol. 32, issue 4, 3333-3346

Abstract: We analyze the choice between a one-tier and a two-tier board structure in a firm with a large shareholder sitting on the board. The board has two tasks: project selection and monitoring the ability of the manager. In a one-tier structure, the sole board performs all tasks. In a two-tier structure, the management board is in charge of project selection and the supervisory board is in charge of monitoring. We show that such a two-tier structure can limit interference from the large shareholder and provide the manager with the incentive to exert effort to become informed on investment projects without reducing the large shareholder's incentive for monitoring. This results in higher expected profits. If the increase in profits is high enough, the large shareholder prefers a two-tier board even if this implies that the manager selects his own preferred project.

Keywords: Board of directors; Dual board; Corporate Governance; Monitoring (search for similar items in EconPapers)
JEL-codes: G3 L2 (search for similar items in EconPapers)
Date: 2012-12-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I4-P321.pdf (application/pdf)

Related works:
Working Paper: Ownership Concentration, Monitoring and Optimal Board Structure (2005)
Working Paper: Ownership Concentration, Monitoring and Optimal Board Structure (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-12-00718

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().