Board composition and CEO power

Tim Baldenius, Nahum Melumad and Xiaojing Meng

Journal of Financial Economics, 2014, vol. 112, issue 1, 53-68

Abstract: We study the optimal composition of corporate boards. Directors can be either monitoring or advisory types. Monitoring constrains the empire-building tendency of chief executive officers (CEOs). If shareholders control the board nomination process, a non-monotonic relation ensues between agency problems and board composition. To preempt CEO entrenchment, shareholders may assemble an adviser-heavy board. If a powerful CEO influences the nomination process, this may result in a more monitor-heavy board. Regulations strengthening the monitoring role of boards can be harmful in precisely those cases in which agency problems are severe or in which CEO entrenchment is a threat to corporate governance.

Keywords: Corporate governance; CEO power; Board composition (search for similar items in EconPapers)
JEL-codes: G34 M41 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (59)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:112:y:2014:i:1:p:53-68

DOI: 10.1016/j.jfineco.2013.10.004

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