Why Do Boards Exist? Governance Design in the Absence of Corporate Law

Why Do Boards Exist? Governance Design in the Absence of Corporate Law

Mike Burkart, Salvatore Miglietta, Charlotte Ostergaard

Series number :

Serial Number: 
504/2016

Date posted :

April 25 2017

Last revised :

April 29 2017
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Keywords

  • boards • 
  • Corporate governance • 
  • Authority Allocation • 
  • Private Contracting

We study how owners trade off costs and benefits of establishing a board in a historical setting, where boards are optional and authority over corporate decisions can freely be allocated across the general meeting, the board, and management. We find that large owners and boards are substitutes, and that boards exist in firms most prone to have collective action problems.

Boards monitor, advise, and mediate among shareholders, and these different roles entail different allocations of authority. Boards also arise to balance the need for small shareholder protection with the need to curb managerial discretion.

Authors

Real name: 
Fellow, Research Member
London School of Economics and Political Science
Real name:
Salvatore Miglietta
Real name:
Charlotte Ostergaard