Economics at your fingertips  

The construction of a firm's governance structure in a setting of uncertainty

Erik O'Donoghue

Managerial and Decision Economics, 2004, vol. 25, issue 5, 221-229

Abstract: Why does the firm look the way it does? Why does it have the structures it has? In particular, what is the function of the board of directors? Many papers have tried, and failed, to link the board's structure to the performance of the firm. Might the board have an alternative rationale for existence? In this paper, I explore the possibility of the board being used as a signaling device. The management, having information about the state of the world the investor does not, constructs a signal (the board of directors) to promote efficiency in an uncertain world. The construction of the board signals the state of the world to the investor, reducing the uncertainty, and thereby attracting necessary capital to the firm. I then examine the size of the signal with respect to other key firm characteristics. I find that the size of the signal diminishes as investors become more concentrated. Copyright © 2004 John Wiley & Sons, Ltd.

Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) Link to full text; subscription required (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:

DOI: 10.1002/mde.1144

Access Statistics for this article

Managerial and Decision Economics is currently edited by Antony Dnes

More articles in Managerial and Decision Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2023-01-23
Handle: RePEc:wly:mgtdec:v:25:y:2004:i:5:p:221-229