Ownership Concentration, Monitoring and Optimal Board Structure

The paper analyzes the optimal structure of the board of directors in a firm with a large shareholder sitting on the board. In a one-tier structure the sole board performs all tasks, while in a two-tier structure the management board is in charge of project selection and the supervisory board is in charge of monitoring. We consider the case in which the large shareholder sits on (and controls) the supervisory board but not on the management board. We show that such a two-tier structure can limit the interference of the large shareholder and can restore manager’s incentive to exert effort to become informed on new investment projects without reducing the large shareholder’s incentive to monitor the manager. This results in higher expected profits. The difference in profits can be sufficiently high to make the large shareholder prefer a two-tier board even if this implies that the manager selects his own preferred project. The paper has interesting policy implications since it suggests that two-tier boards can be a valuable option in Continental Europe where ownership structure is concentrated. It also offers support to some recent corporate governance reforms (like the so-called Vietti reform in Italy) that have introduced the possibility to choose between one-tier and two-tier structure of boards for listed firms.board of directors, dual board, corporate governance, monitoring, project choice

"Who Appoints Them, What Do they Do? Evidence on Outside Directors from Japan"

Reformists argue that Japanese firms maintain inefficiently few outside directors, while theory suggests market competition should drive firms toward their firm-specifically optimal board structure (if any). The debate suggests three testable hypotheses. First, perhaps board composition does not matter. If so, then firm performance will show no relation to board structure, but outsiders will be randomly distributed across firms. Second, perhaps boards matter, but many have suboptimal numbers of outsiders. If so, then firms with more outsiders should outperform those with fewer. Last, perhaps board matter, but market constraints drive firms toward their firm-specific optimum. If so, then firm characteristics will determine board structure, but firm performance will show no observable relation to that structure. To test these hypotheses, we assemble data on the 1000 largest exchange-listed Japanese firms from 1986-94. We first explore which firms tend to appoint outsiders to their boards, and find the appointments decidedly non-random: board composition matters. We then ask whether firms with more outside directors outperform those with fewer, and find that they do not: board composition is endogenous. As we find no robust evidence that board composition affects firm performance during either the thriving 1980s or the depressed early 1990s, we suspect that the optimal board structure may not depend on the macro-economic environment. We note that until recently courts effectively barred shareholder suits in Japan. We speculate that the much higher level of outside directors in the U.S. may have nothing to do with efficiency or monitoring. Instead, it probably reflects the way U.S. courts let firms use such directors to insulate the firm from extortionate but otherwise costly-to-defend self-dealing claims.

The determinants of board size and composition: Evidence from the UK

This paper examines the trends and determinants of board structure for a large sample of UK firms from 1981 to 2002. We extend the predominantly US based literature in a number of important ways. Firstly, a comparative analysis of the UK and US legal and institutional settings leads us to hypothesize that UK boards will play a weaker monitoring role and hence board structures will not be determined by monitoring related factors. Our evidence supports this conjecture, showing that board structure determinants differ in predictable ways across different institutional settings. Secondly, in contrast to recent US mandatory reforms, UK reforms have been voluntary. As such they provide an interesting comparison, being arguably more effective than a mandatory approach by allowing firms to choose board structures most appropriate for their own needs. Our results support this point of view. Although the UK reforms do have a significant impact on board structures, a large number of firms choose not to comply, and those that do appear to do so for strong economic reasons. The reforms also appear to reduce the ability of well performing CEOs to influence board structures

Board structure, Ownership structure, and Firm performance : Evidence from Banking

This paper examines the interrelations among five ownership and board characteristics in a sample of 260 bank and savings-and-loan holding companies. These governance characteristics, designed to reduce agency problems between shareholders and managers, are insider ownership, blockholder ownership, the proportion of outside directors, board leadership structure, and board size. Using two-stage least squares regressions, we present evidence of interdependencies between board and ownership structures. The results suggest that banks substitute between governance mechanisms that align the interests of managers and shareholders. These findings suggest that cross-sectional OLS regressions of bank performance on single governance mechanisms may be misleading. Indeed, we find statistically significant relationships between performance and insider ownership and blockholder ownership when using OLS regressions. However, these statistically significant relationships disappear when the simultaneous equations framework is used. Together, these findings are consistent with optimal use of each governance mechanism by banks.Corporate governance ; board structure ; ownership structure ; performance ; banking ; simultaneous equations

Board Structure and Price Informativeness

We develop and test the hypothesis that private information incorporated into stock prices affects the structure of corporate boards. Stock price informativeness may be a complement to board monitoring, because the information revealed by prices can be used by directors to monitor management. But price informativeness may also be a substitute for board monitoring, because more informative prices can trigger external monitoring mechanisms, such as takeovers. We find robust evidence for the substitution effect: Stock price informativeness, as measured by the probability of informed trading (PIN), is negatively related to board independence. Consistent with the model's predictions, this relationship is particularly strong for firms exposed to external governance mechanisms and internal governance mechanisms, and firms for which firm-specific knowledge is relatively unimportant. We address endogeneity concerns in a number of different ways and conclude that our results are unlikely to be driven by omitted variables or reverse causality. The results are also robust to using different measures of price informativeness and different proxies for board monitoringCorporate boards, Independent directors, Price informativeness

Superintendent and School Board Relations: Impacting Achievement through Collaborative Understanding of Roles and Responsibilities

One of the most important and influential persons in the governance structure of the local school district is the Superintendent of Schools. Functioning as the CEO of the district, the superintendent is responsible for a myriad of functions. Examples include daily operations inclusive of transportation and finance, curriculum and policy implementation, media relations, and empowering leaders. However, as Meador (2014) contends, a crucial role is that of board liaison. The Superintendent is responsible for keeping the board informed, making recommendations regarding district operations, and setting the board agenda. It is interesting to note that the superintendent does participate in board meetings, but in an advisory capacity. Finally, the superintendent is responsible for enacting all mandates approved by the school board

Ownership structure, board characteristics, and tax aggressiveness

Tax aggressiveness, as commonly proxied by the effective tax rate (ETR), measures a firm’s effort spent on minimizing its tax payments. It is suggested that more tax aggressive firms have greater incentives to allocate resources to minimize taxes and thus have lower ETRs. Corporate governance has been continuously receiving attention in literature across different fields and can affect a firm’s tax strategy through its control mechanism. This thesis investigates how corporate governance influences a firm’s tax aggressiveness. The main hypothesis of this thesis is whether firms with good corporate governance will have less incentives and opportunities to manage tax aggressively. Specifically, I take advantages of the distinct institutional settings in China to study whether the Chinese firm’s tax aggressiveness is affected by ownership structure and the characteristics of board of directors. Using all non-financial listed companies in the Chinese A-share market during 2003 and 2009 period, I find that firms with state-controlled nature and lower proportion of controlling shares pursue less aggressive tax strategies and maintain higher ETRs. In addition, my finding is consistent with prior literature that a higher percentage of the boards’ shareholdings and dual service duties performed by the board chairman result in lower ETRs. However, I do not find a significant relationship between the percentage of independent directors and tax aggressiveness which may suggest the ineffective role of independent directors in China