Do board interlocks support monitoring effectiveness? Evidence from listed German companies

This paper aims to investigate the relationship between board interlocks and monitoring effectiveness for listed German companies in a context of risk governance. While agency-theory and resource-dependence-theory suggest a positive association between board interlocks and monitoring effectiveness, reasons such as limited temporal resources of busy board members may suggest a negative association.

By using panel data regression, the authors examined the association between board interlocks and monitoring effectiveness, which was approximated by excessive management compensation, pay-for-performance-sensitivity and CEO turnover-performance-sensitivity. The data set comprises 3,998 directorships for 132 listed German companies covering the period 2015-2017.

The authors find that board interlocks are associated with not only a more excessive management pay and less performance-sensitive turnover but also a higher pay-for-performance-sensitivity.

The study examines the impact of multiple directorships based on a German panel data set that includes both multiple appointments of members to national supervisory boards and all other appointments to national and international executive and supervisory bodies. The authors compile three measures to operationalize monitoring effectiveness.