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Corporate Board Composition, Protocols, and Voting Behavior: Experimental Evidence

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Author Info
Ann B. Gillette (Faculty of Georgia State University)
Thomas H. Noe (Faculty of Tulane University)
Michael J. Rebello (Faculty of Georgia State University)

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Abstract

We examine voting by a board designed to mitigate conflicts of interest between privately informed insiders and owners. Our model demonstrates that, as argued by researchers and the business press, boards with a majority of trustworthy but uninformed "watchdogs" can implement institutionally preferred policies. Our laboratory experiments strongly support this conclusion. Our model also highlights the necessity of penalties on insiders when there is dissension among board members. However, penalties for dissent appeared to have little impact on the experimental outcomes. Copyright (c) 2003 by the American Finance Association.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 58 (2003)
Issue (Month): 5 (October)
Pages: 1997-2032
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Handle: RePEc:bla:jfinan:v:58:y:2003:i:5:p:1997-2032

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Palfrey, Thomas R., 1990. "Implementation in Bayesian Equilibrium: The Multiple Equilibrium Problem in Mechanism Design," Working Papers 760, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  2. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January. [Downloadable!] (restricted)
  3. Isaac, R Mark & Walker, James M, 1988. "Communication and Free-Riding Behavior: The Voluntary Contribution Mechanism," Economic Inquiry, Oxford University Press, vol. 26(4), pages 585-608, October.
  4. Russell Cooper & Douglas V. DeJong & Robert Forsythe & Thomas W. Ross, 1989. "Communication in the Battle of the Sexes Game: Some Experimental Results," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 568-587, Winter. [Downloadable!] (restricted)
  5. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February. [Downloadable!] (restricted)
  6. Sefton, Martin & Yavas, Abdullah, 1996. "Abreu-Matsushima Mechanisms: Experimental Evidence," Games and Economic Behavior, Elsevier, vol. 16(2), pages 280-302, October. [Downloadable!] (restricted)
  7. Farrell, Joseph & Rabin, Matthew, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-18, Summer. [Downloadable!] (restricted)
  8. Eckel, Catherine & Holt, Charles A, 1989. "Strategic Voting in Agenda-Controlled Committee Experiments," American Economic Review, American Economic Association, vol. 79(4), pages 763-73, September. [Downloadable!] (restricted)
  9. Benjamin E. Hermalin & Michael S. Weisbach, 1996. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," Working Papers _004, University of California at Berkeley, Haas School of Business. [Downloadable!]
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  10. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November. [Downloadable!] (restricted)
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  13. Anup Agrawal & Charles R. Knoeber, . "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders (Revision of 29-94)," Rodney L. White Center for Financial Research Working Papers 8-96, Wharton School Rodney L. White Center for Financial Research.
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  16. Warther, Vincent A., 1998. "Board effectiveness and board dissent: A model of the board's relationship to management and shareholders," Journal of Corporate Finance, Elsevier, vol. 4(1), pages 53-70, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ann B. Gillette & Thomas H. Noe & Michael J. Rebello, 2008. "Board structures around the world: An experimental investigation," OFRC Working Papers Series 2008fe15, Oxford Financial Research Centre. [Downloadable!]
    Other versions:
  2. Renée Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2008. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," NBER Working Papers 14486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Fernando Lefort & Eduardo Walker, 2005. "The Effect of Corporate Governance Practices on Company Market Valuation and Payout Policy in Chile," RES Working Papers 3210, Inter-American Development Bank, Research Department. [Downloadable!]
  4. Fernando Lefort & Eduardo Walker, 2005. "El efecto de las prácticas de gobierno corporativo sobre la valuación de mercado y políticas de pago de compañías chilenas," RES Working Papers 3211, Inter-American Development Bank, Research Department. [Downloadable!]
  5. Ricardo Leal & André Carvalhal-da-Silva, 2005. "Corporate Governance and Value in Brazil (and in Chile)," RES Working Papers 3208, Inter-American Development Bank, Research Department. [Downloadable!]
  6. Ricardo Leal & André Carvalhal-da-Silva, 2005. "Conducción y valor empresarial en Brasil (y Chile)," RES Working Papers 3209, Inter-American Development Bank, Research Department. [Downloadable!]
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