Board Monitoring and Advising in Dynamic Agency

Svetlana Katolnik, Sandra K. Kronenberger and Jens Robert Schöndube

European Accounting Review, 2022, vol. 31, issue 4, 973-1002

Abstract: Intuition suggests that shareholders benefit from active boards. We present a model to show that if contract renegotiation is possible, then an active board might not always be desirable from the shareholders' perspective. This happens because low board activity may partially offset the distortion in the manager's incentives caused by the renegotiation option. While the value of low board activity stems from the board's weak monitoring, a strong measurement effect of the board's advising in the manager's performance measures is necessary to implement it. In this case, a sufficiently independent board motivates a low level of board activity.

Date: 2022
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DOI: 10.1080/09638180.2021.1890630

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