This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Ownership Concentration, Monitoring and Optimal Board Structure

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Clara Graziano ()
Annalisa Luporini ()

Additional information is available for the following registered author(s):

Abstract

The paper analyzes the optimal structure of the board of directors in a firm with a large shareholder sitting on the board. In a one-tier structure the sole board performs all tasks, while in a two-tier structure the management board is in charge of project selection and the supervisory board is in charge of monitoring. We consider the case in which the large shareholder sits on (and controls) the supervisory board but not on the management board. We show that such a two-tier structure can limit the interference of the large shareholder and can restore manager’s incentive to exert effort to become informed on new investment projects without reducing the large shareholder’s incentive to monitor the manager. This results in higher expected profits. The difference in profits can be sufficiently high to make the large shareholder prefer a two-tier board even if this implies that the manager selects his own preferred project. The paper has interesting policy implications since it suggests that two-tier boards can be a valuable option in Continental Europe where ownership structure is concentrated. It also offers support to some recent corporate governance reforms (like the so-called Vietti reform in Italy) that have introduced the possibility to choose between one-tier and two-tier structure of boards for listed firms.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cesifo-group.de/DocCIDL/cesifo1_wp1543.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1543.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2005
Date of revision:
Handle: RePEc:ces:ceswps:_1543

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de

For technical questions regarding this item, or to correct its listing, contact: (Julio Saavedra).

Related research
Keywords: board of directors; dual board; corporate governance; monitoring; project choice;

Other versions of this item:

Find related papers by JEL classification:
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

This paper has been announced in the following NEP Reports:

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. David Hirshleifer & Anjan V. Thakor, 1998. "Corporate Control Through Board Dismissals and Takeovers," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 7(4), pages 489-520, December. [Downloadable!] (restricted)
  2. Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, vol. 88(1), pages 96-118, March. [Downloadable!] (restricted)
    Other versions:
  3. Benjamin E. Hermalin & Michael S. Weisbach, 2001. "Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature," NBER Working Papers 8161, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Falk, Armin & Kosfeld, Michael, 2004. "Distrust - The Hidden Cost of Control," IZA Discussion Papers 1203, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Clara Graziano & Annalisa Luporini, 2003. "Board Efficiency and Internal Corporate Control Mechanisms," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 12(4), pages 495-530, December. [Downloadable!] (restricted)
  6. Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, vol. 62(1), pages 217-250, 02. [Downloadable!] (restricted)
  7. Burkart, Mike & Gromb, Denis & Panunzi, Fausto, 1997. "Large Shareholders, Monitoring, and the Value of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 693-728, August.
Full references

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. Ettore Andreani & Kathrin Dummann & Doris Neuberger, 2009. "Composition of Supervisory Boards in Germany: Inside or Outside Control of Banks?," Thuenen-Series of Applied Economic Theory 103, University of Rostock, Institute of Economics, Germany. [Downloadable!]
  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)
    Other versions:
Statistics
Access and download statistics

Did you know? RePEc and its associated services are free for contributors and users, and do not accept any advertising.

This page was last updated on 2009-12-1.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.