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The powers that be: Concentration of authority within the board of directors and variability in firm performance☆

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  • Tran, Hai
  • Turkiela, Jason

Abstract

In this study, we examine how the concentration of authority within the board of directors affects the variability of firm performance. Using directors' committee assignments as a proxy for decision-making power, we develop two unique measures of board concentration of authority. We find that firms with greater concentration of power within their boards have higher variability in firm performance. In additional tests, we demonstrate that our results are not driven by endogeneity bias. Finally, we also show concentrated boards adopt more extreme corporate strategies, providing several different mechanisms through which board concentration of power affects firm performance volatility.

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  • Tran, Hai & Turkiela, Jason, 2020. "The powers that be: Concentration of authority within the board of directors and variability in firm performance☆," Journal of Corporate Finance, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:corfin:v:60:y:2020:i:c:s0929119919302743
    DOI: 10.1016/j.jcorpfin.2019.101537
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    More about this item

    Keywords

    Authority; Board of directors; Corporate governance; Decision-making power; Delegation; Firm performance; Variability;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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