Enhancing Board Monitoring Tasks: The Effect of Minority-Elected Directors

Sara De Masi and Andrea Zorzi

International Journal of Business and Management, 2021, vol. 15, issue 7, 85

Abstract: In companies with a controlling shareholder the agency relationship between controlling shareholders and minority shareholders poses significant issue. Managers may pursue, rather than the interests of the company as a whole, the interest of the controlling shareholder. When there is a controlling shareholder, independent directors may not prove sufficient to monitor the management behaviour, given that they are ultimately appointed by the same controlling shareholder whose possible opportunistic behaviour they are meant to constrain. Therefore, minority shareholders may be given appointment rights to the board- directors elected by minority shareholders may work as a corporate governance mechanism that fosters the board’s willingness and ability to monitor managers’ behaviour, on the assumption that managers are appointed by the controlling shareholder. This paper examines empirically whether having a minority-elected director on corporate boards increases the ability of the board to monitor management behaviour. Using a sample of the largest listed Italian companies in years 2008-2017, we find that minority-elected directors have a positive and statistically significant effect on board monitoring tasks. We also document that this effect is higher when they are elected by institutional investors. Our results have important implications for policy makers and, more generally, corporate governance best practice in all contexts in which companies have a concentrated ownership structure.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.ccsenet.org/journal/index.php/ijbm/article/download/0/0/42979/44968 (application/pdf)
http://www.ccsenet.org/journal/index.php/ijbm/article/view/0/42979 (text/html)

Related works:
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:ibn:ijbmjn:v:15:y:2021:i:7:p:85

Access Statistics for this article

More articles in International Journal of Business and Management from Canadian Center of Science and Education Contact information at EDIRC.
Bibliographic data for series maintained by Canadian Center of Science and Education ().