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Disproportionate insider control and board of director characteristics

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  • Baran, Lindsay
  • Forst, Arno

Abstract

We comprehensively examine the characteristics of the board of directors in firms characterized by disproportionate insider control. Specifically, we investigate whether board of director characteristics contribute to, or attenuate, the known negative association between a divergence of insider voting and cash flow rights and firm value. Using a new hand-collected sample of U.S. dual-class firms between 2000 and 2012, we find that disproportionate insider control is negatively associated with board experience, independence, and the tenure/age of directors. These findings support an entrenchment, rather than a substitution explanation, which would require stronger board monitoring as the extent of agency conflicts increases. Moreover, mediation analyses reveal that negative board characteristics act as one channel for the previously established negative association between disproportionate insider control and firm value.

Suggested Citation

  • Baran, Lindsay & Forst, Arno, 2015. "Disproportionate insider control and board of director characteristics," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 62-80.
    • Handle: RePEc:eee:corfin:v:35:y:2015:i:c:p:62-80
    DOI: 10.1016/j.jcorpfin.2015.08.006
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    More about this item

    Keywords

    Dual-class firms; Directors; Governance; Firm value; Entrenchment;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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