The value of board commitment

Tim Baldenius (), Xiaojing Meng () and Lin Qiu ()
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Tim Baldenius: Columbia Business School
Xiaojing Meng: NYU Stern School of Business
Lin Qiu: University of Hong Kong

Review of Accounting Studies, 2021, vol. 26, issue 4, No 10, 1587-1622

Abstract: Abstract Boards can learn about the environment of their firms through information gathering and communicating with the CEO. In the post-Sarbanes-Oxley environment, some boards have taken steps to shape the communication more proactively by committing to decision rules, such as spending limits, before eliciting a report from the CEO. All else equal, such commitment power on the part of the board improves its communication with the CEO. However, taking into consideration the endogeneity of board composition/bias, we show that the board’s commitment power may in fact impede such communication, in equilibrium, by prompting the shareholders to appoint a more antagonistic board. We identify other cases where, in equilibrium, the board’s commitment power does foster communication, but ultimately reduces shareholder value, because the improved information flow dampens the board’s effort incentives. We discuss applications of our model to board staggering.

Keywords: Corporate governance; Board of Directors; Strategic communication (search for similar items in EconPapers)
JEL-codes: D21 D86 G34 M41 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11142-021-09586-9

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