The Board of Directors

Corporate Governance and the Effect on Firm Value

verfasst von: Dr. Ettore Croci

Verlag: Springer International Publishing

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

Boards of directors are a central feature of any corporate governance regime. The role of directors and how they affect firm value and policies is examined in depth in academic literature. However, it is easy to get both lost and overwhelmed when searching through the literature review that investigates several characteristics, often one at the time. This book provides a careful and concise look at corporate finance literature, specifically with regard to the board of directors, summarizing the main findings and reconciling them. This book documents the pros and cons associated with the various attributes of the board and the directors as found in the current literature and provides sections geared specifically to practitioners in this space, as well, allowing for a better and more comprehensive description of this important corporate governance mechanism. The resulting book aims to facilitate the interpretation of changes in corporate governance through the lens of the recent academic literature.

Inhaltsverzeichnis

Frontmatter

Chapter 1. The Board of Directors

Abstract

Boards exist because they are an optimal response to the conflicts of interests between shareholders and managers, and between types of shareholders. While there is a wide consensus on this point, the literature is more divided on how directors should split their time and energies between monitoring and advising the managers. The monitoring role has been considered the primary duty of the directors for a long time, but recent studies show that directors devote a fair share of their time to advising managers. However, directors can effectively advise managers only when managers share information. Managers are reluctant to do this because directors can use the shared information to monitor them. The chapter also presents the main difference between one-tier and two-tier boards and discusses director election.

Ettore Croci

Chapter 2. Board, Firm Value, and Corporate Policies

Abstract

This chapter reviews board characteristics such as size, composition, leadership, staggered boards, busyness, and diversity. Advances in the literature have brought clarity, but not one-size-fits-all answers. While smaller boards on average increase firm value, there is not an optimal size for all firms. Independence leads to more board oversight and usually increases value, but insiders can also be helpful. Separating chief executive officer and chairman is often beneficial, but some firms benefit from combining the roles. Staggered boards do not seem to destroy value. Researchers have investigated diversity, especially gender diversity. Generally, greater heterogeneity may not necessarily improve board efficacy. Bank boards are also examined. Banks have larger boards, and more independence may be detrimental if the alignment with the shareholders leads to more risk-taking.

Ettore Croci

Chapter 3. The Characteristics of the Directors

Abstract

This chapter discusses directors’ attributes such as social ties, reputation, geographic proximity, and expertise. The concept of independence needs to encompass social ties and connections to be effective. Directors vary according to their reputation and respond to reputation incentives, especially when an efficient labor market for directors exists. Despite the available technologies, the geographical proximity of directors to a firm’s headquarters still provides an advantage when decisions are based on soft information. Firms often add experts to their boards. While industry expertise and specific expertise have on average a positive effect on firm value, the evidence about financial expertise is less clear. For banks, financial expertise is associated with more risk-taking. Overall, directors are a very heterogeneous group, with diverse backgrounds, characteristics, and incentives.

Ettore Croci

Chapter 4. Conclusions

Abstract

This chapter contains some concluding remarks. Boards have attracted a great deal of interest because they are complicated, and many questions about them lack simple answers. Recent literature has certainly brought some clarity on several issues, but this clarity does not go hand in hand with simple one-size-fits-all solutions. The advances in the literature have made a strong case for a more nuanced approach to corporate board regulation: what is good for the average firm can be detrimental for others. To adopt this more nuanced approach, it is probably time to go beyond the idea of good versus bad corporate governance. Future research should answer the question whether it is optimal to regulate the board of directors less instead of proposing one-size-fits-all approaches.

Ettore Croci

Backmatter

Titel: The Board of Directors
verfasst von: Dr. Ettore Croci
Verlag: Springer International Publishing
Electronic ISBN: 978-3-319-96616-8
Print ISBN: 978-3-319-96615-1
DOI: https://doi.org/10.1007/978-3-319-96616-8