Delegated Monitoring: When Can Boards Rely on Outside Experts?

Nina Walton

American Law and Economics Review, 2012, vol. 14, issue 1, 271-301

Abstract: This paper provides a theoretical model to examine when and how boards of directors can utilize outside experts who provide second opinions to assist them in 1) monitoring managers with career concerns and 2) approving firm investments. Because an agreeable second opinion serves as a signaling mechanism, when such opinions are credible, policies mandating the use of experts are unnecessary as managers will choose to seek out second opinions on their own. Mandates can be counterproductive, however, if they unduly elevate the status of costly second opinions that always agree with management recommendations. In the absence of incentives for truthful disclosure of information to experts, it is better for boards to forego efforts to and require management and experts to present their recommendations as one. Copyright 2012, Oxford University Press.

Date: 2012
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/aler/ahr022 (application/pdf)
Access to full text is restricted to subscribers.

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:oup:amlawe:v:14:y:2012:i:1:p:271-301

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

American Law and Economics Review is currently edited by J.J. Prescott and Albert Choi

More articles in American Law and Economics Review from American Law and Economics Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().