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Examining the Relationships Between Monitoring and Incentives in Corporate Governance

Author

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  • Matthew A. Rutherford
  • Ann K. Buchholtz
  • Jill A. Brown

Abstract

abstract Agency theory focuses on monitoring and incentives as two solutions to agency problems. Prior research suggests that monitoring and incentives may act either as substitutes or as complements, and that the context of the agency relationship plays a major role in determining the direction of the relationship between them. In a corporate governance setting, we contend that board information and boards' usage of CEO control mechanisms are best viewed as complements. Thus, we hypothesize that boards' information gathering behaviour will be positively related to boards' usage of CEO control mechanisms. Using primary and secondary data from 149 US firms, we find that increases in boards' information gathering are associated with increases in boards' usage of managerial controls. These findings suggest that information and managerial control mechanisms act as complements in the governance context, and that boards take a variety of actions to protect the interests of shareholders.

Suggested Citation

  • Matthew A. Rutherford & Ann K. Buchholtz & Jill A. Brown, 2007. "Examining the Relationships Between Monitoring and Incentives in Corporate Governance," Journal of Management Studies, Wiley Blackwell, vol. 44(3), pages 414-430, May.
    • Handle: RePEc:bla:jomstd:v:44:y:2007:i:3:p:414-430
    DOI: 10.1111/j.1467-6486.2007.00683.x
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    Cited by:

    1. G. Tyge Payne & George S. Benson & David L. Finegold, 2009. "Corporate Board Attributes, Team Effectiveness and Financial Performance," Journal of Management Studies, Wiley Blackwell, vol. 46(4), pages 704-731, June.
    2. Shiang-Min Meng, 2013. "Application of Laozi’s Daodejing to Current Corporate Governance," International Journal of Asian Social Science, Asian Economic and Social Society, vol. 3(10), pages 2114-2133, October.
    3. Eric A. Fong, 2010. "Relative CEO Underpayment and CEO Behaviour Towards R&D Spending," Journal of Management Studies, Wiley Blackwell, vol. 47(6), pages 1095-1122, September.
    4. Niamh Brennan & Collette E. Kirwan & John Redmond, 2016. "Accountability Processes in Boardrooms: A Conceptual Model of Manager-Non-Executive Director Information Asymmetry," Open Access publications 10197/7652, Research Repository, University College Dublin.
    5. Giovanni-Battista Derchi & Laura Zoni & Andrea Dossi, 2021. "Corporate Social Responsibility Performance, Incentives, and Learning Effects," Journal of Business Ethics, Springer, vol. 173(3), pages 617-641, October.
    6. Gerhard Schnyder, 2012. "Measuring Corporate Governance: Lessons from the 'Bundles Approach'," Working Papers wp438, Centre for Business Research, University of Cambridge.
    7. Cambini, Carlo & De Masi, Sara & Paci, Andrea & Rondi, Laura, 2018. "CEO compensation in EU telecom companies: Does the state design the right incentives?," Telecommunications Policy, Elsevier, vol. 42(6), pages 474-488.
    8. JP Vergne & Georg Wernicke & Steffen Brenner, 2018. "Signal Incongruence and Its Consequences: A Study of Media Disapproval and CEO Overcompensation," Organization Science, INFORMS, vol. 29(5), pages 796-817, October.
    9. Hanisch, Marvin & Goldsby, Curtis M. & Fabian, Nicolai E. & Oehmichen, Jana, 2023. "Digital governance: A conceptual framework and research agenda," Journal of Business Research, Elsevier, vol. 162(C).
    10. Veprauskaitė, Elena & Adams, Mike, 2013. "Do powerful chief executives influence the financial performance of UK firms?," The British Accounting Review, Elsevier, vol. 45(3), pages 229-241.
    11. Jean McGuire & Jana Oehmichen & Michael Wolff & Roman Hilgers, 2019. "Do Contracts Make Them Care? The Impact of CEO Compensation Design on Corporate Social Performance," Journal of Business Ethics, Springer, vol. 157(2), pages 375-390, June.
    12. Jill A. Brown & Anne Anderson & Jesus M. Salas & Andrew J. Ward, 2017. "Do Investors Care About Director Tenure? Insights from Executive Cognition and Social Capital Theories," Organization Science, INFORMS, vol. 28(3), pages 471-494, June.
    13. Dutordoir, Marie & Strong, Norman & Ziegan, Marius C., 2014. "Does corporate governance influence convertible bond issuance?," Journal of Corporate Finance, Elsevier, vol. 24(C), pages 80-100.
    14. Gavin Nicholson & Zoie Cook, 2009. "The Paradox of Transparency, Short-Termism and the Institutionalisation of Australian Capital Markets," Australian Accounting Review, CPA Australia, vol. 19(4), pages 303-313, December.
    15. Jacqueline Christensen & Pamela Kent & James Routledge & Jenny Stewart & Gary Monroe, 2015. "Do corporate governance recommendations improve the performance and accountability of small listed companies?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 55(1), pages 133-164, March.
    16. Dirk De Clercq & Dimo Dimov, 2008. "Internal Knowledge Development and External Knowledge Access in Venture Capital Investment Performance," Journal of Management Studies, Wiley Blackwell, vol. 45(3), pages 585-612, May.
    17. Kalelkar, Rachana, 2016. "Audit committee diligence around initial audit engagement," Advances in accounting, Elsevier, vol. 33(C), pages 59-67.
    18. Szymon Kaczmarek & Satomi Kimino & Annie Pye, 2014. "Interlocking directorships and firm performance in highly regulated sectors: the moderating impact of board diversity," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(2), pages 347-372, May.
    19. Peter J. Baldacchino & Chantelle Camilleri & Simon Grima & Frank H. Bezzina, 2017. "Assessing Incentive and Monitoring Schemes in the Corporate Governance of Maltese Co-operatives," European Research Studies Journal, European Research Studies Journal, vol. 0(3A), pages 177-195.

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