Shareholder Primacy and Managerial Accountability

Shareholder primacy is increasingly considered as the most effective way to foster managerial (corporate) accountability. Contrary to this now standard argument, we consider that shareholder primacy, rather than gatekeeper failure, is directly responsible for the multiplication of accounting irregularities and the dramatic increase in executive compensations. To defend this thesis, we propose a new reading of Berle and Means (1932), Galbraith (1973) and Alchian and Demsetz (1972), stressing the logical failure of a control of the business firm provided for by stock markets: the implementation of shareholder primacy implies a partial disconnection between access to internal knowledge and empowerment. In turn, this disconnection favours deceptive behaviours on the part of corporate insiders. Empirical evidence mostly based on Enron-era financial scandals illustrates our argument

Financial disclosure and the Board: A case for non-independent directors

In listed companies, the Board of directors has ultimate responsibility for information disclosure. The conventional wisdom is that director independence is an essential factor in improving the quality of that disclosure. In a sense, this approach subordinates expertise to independence. We argue that effective certification may require firm-specific expertise, in particular for intangible-intensive business models. However, this latter form of expertise is negatively related to independence as it is commonly measured and evaluated. Accordingly, there exists an optimal share of independent directors for each company, related to the level of intangible resources.

Financial Disclosure and the Board: Is Independence of Directors Always Efficient

In listed companies, the Board of directors is the ultimate responsible of information disclosure. The "conventional wisdom" considers independence of directors as the essential attribute to improve the quality of that disclosure. In a sense, this approach subordinates expertise to independence. However, effective certification may require finn-specific expertise, in particular for intangible-intensive business models. However, this latter form of expertise is negatively related to independence as it is commonly measured and evaluated. We show that there exists an optimal share of independent directors for each company, related to the magnitude of intangible resources.Board of directors; information disclosure; accounting; intangible resources

Shareholder Primacy and Managerial Accountability

Shareholder primacy is increasingly considered as the most effective way to foster managerial (corporate) accountability. Contrary to this now standard argument, we consider that shareholder primacy, rather than gatekeeper failure, is directly responsible for the multiplication of accounting irregularities and the dramatic increase in executive compensations. To defend this thesis, we propose a new reading of Berle and Means (1932), Galbraith (1973) and Alchian and Demsetz (1972), stressing the logical failure of a control of the business firm provided for by stock markets: the implementation of shareholder primacy implies a partial disconnection between access to internal knowledge and empowerment. In turn, this disconnection favours deceptive behaviours on the part of corporate insiders. Empirical evidence mostly based on Enron-era financial scandals illustrates our argument

Financial disclosure and the Board: a case for non-independent directors

In listed companies, the Board of directors has ultimate responsibility for information disclosure. The conventional wisdom is that director independence is an essential factor in improving the quality of that disclosure. In a sense, this approach subordinates expertise to independence. We argue that effective certification may require firm-specific expertise, in particular for intangible-intensive business models. However, this latter form of expertise is negatively related to independence as it is commonly measured and evaluated. Accordingly, there exists an optimal share of independent directors for each company, related to the level of intangible resources

Efficient monitoring and control in intangibles-driven economies: is full independence always required?

The current crisis puts at issue the self-regulated market system of monitoring and control. Claims for restoring the proper functioning of market economies in general, and financial markets in particular, call for either establishing new sets of rules or creating new supervising authorities. Both claims rely on the received mantra of full independence that applies whenever control is concerned. However, our analysis pays attention to a neglected aspect of monitoring and control, which requires the capability to discovering and understanding flaws in and dangers from the inner congeries of the business affair under examination. Arguably, this businessspecific expertise and independence trade off. To overcome this problem, an optimal share of non-independent controllers may be chosen from or appointed by stakeholding constituencies of the business affair. They can provide proficient monitoring and control without colluding, in principle, with executive managers of the activity to be controlled

Independent directors: less informed, but better selected? New evidence from a two-way director-firm fixed effect model

This paper develops a two-way director-firm fixed effect model to study the relationship between independent directors’ individual heterogeneity and firm operating performance, using French data. This strategy allows considering and differentiating in a unified empirical framework mechanisms related to board functioning and mechanisms related to director selection. We first show that the independence status, netted out unobservable individual heterogeneity, is negatively related to performance. This result suggests that independent board members experience a strong informational gap that outweighs other monitoring benefits. However, we show that industry-specific expertise as well as informal connections inside the boardroom may help to bridge this gap. Second, we provide evidence that independent directors have higher intrinsic ability as compared to affiliated board members, consistent with a reputation-based selection process