A theory of friendly boards

Adams, Renée B. and Ferreira, Daniel (2007) A theory of friendly boards. Journal of Finance, 62 1: 217-250. doi:10.1111/j.1540-6261.2007.01206.x

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Author Adams, Renée B.
Ferreira, Daniel
Title A theory of friendly boards
Journal name Journal of Finance   Check publisher's open access policy
ISSN 0022-1082
1540-6261
Publication date 2007-02-01
Sub-type Article (original research)
DOI 10.1111/j.1540-6261.2007.01206.x
Open Access Status Not yet assessed
Volume 62
Issue 1
Start page 217
End page 250
Total pages 34
Place of publication Chicago, Ill. U.S.
Publisher The American Finance Association
Language eng
Subject 1502 Banking, Finance and Investment
150201 Finance
15 Commerce, Management, Tourism and Services
C1
Abstract We analyze the consequences of the board's dual role as advisor as well as monitor of management. Given this dual role, the CEO faces a trade-off in disclosing information to the board: If he reveals his information, he receives better advice; however, an informed board will also monitor him more intensively. Since an independent board is a tougher monitor, the CEO may be reluctant to share information with it. Thus, management-friendly boards can be optimal. Using the insights from the model, we analyze the differences between sole and dual board systems. We highlight several policy implications of our analysis.
Q-Index Code C1

 
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Created: Fri, 05 May 2006, 23:21:36 EST