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Collusion in board of directors

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  • Bourjade, Sylvain
  • Germain, Laurent

Abstract

The aim of this paper is to study what is the best structure of a Board of Directors when collusive aspects between the Board and the CEO are taken into account. We analyze how shareholders should select the members of the Board in a framework with asymmetric information and uncertainty about the optimal projects for the firm. In particular, we examine the optimal degree of independence of the Board from a shareholders perspective. This allows us to state when it is beneficial for shareholders to have an insider-oriented board or an outsider oriented board with a majority of independent directors when collusion is a major threat.

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File URL: http://mpra.ub.uni-muenchen.de/34814/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34814.

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Date of creation: 2011
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Handle: RePEc:pra:mprapa:34814

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Keywords: Collusion; Corporate Governance; Asymmetric Information; Uncertainty;

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References

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  1. Francesca Cornelli & Zbigniew Kominek & Alexander Ljungqvist, 2013. "Monitoring Managers: Does It Matter?," Journal of Finance, American Finance Association, vol. 68(2), pages 431-481, 04.
  2. Cespa, Giovanni & Cestone, Giacinta, 2004. "Corporate Social Responsibility and Managerial Entrenchment," CEPR Discussion Papers 4648, C.E.P.R. Discussion Papers.
  3. Tirole, Jean, 1999. "Corporate Governance," CEPR Discussion Papers 2086, C.E.P.R. Discussion Papers.
  4. Raheja, Charu G., 2005. "Determinants of Board Size and Composition: A Theory of Corporate Boards," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(02), pages 283-306, June.
  5. 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.
  6. Core, John E. & Holthausen, Robert W. & Larcker, David F., 1999. "Corporate governance, chief executive officer compensation, and firm performance," Journal of Financial Economics, Elsevier, vol. 51(3), pages 371-406, March.
  7. Benjamin E. Hermalin, 2005. "Trends in Corporate Governance," Journal of Finance, American Finance Association, vol. 60(5), pages 2351-2384, October.
  8. Giovanni Cespa & Giacinta Cestone, 2007. "Corporate Social Responsibility and Managerial Entrenchment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(3), pages 741-771, 09.
  9. Lucian A. Bebchuk & Michael S. Weisbach, 2010. "The State of Corporate Governance Research," Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 939-961, March.
  10. Linck, James S. & Netter, Jeffry M. & Yang, Tina, 2008. "The determinants of board structure," Journal of Financial Economics, Elsevier, vol. 87(2), pages 308-328, February.
  11. 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.
  12. 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.
  13. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
  14. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 2(2), pages 181-214, Fall.
  15. Antoine Faure-Grimaud & Jean-Jacques Laffont & David Martimort, 2003. "Collusion, Delegation and Supervision with Soft Information," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 253-279.
  16. Dahya, Jay & McConnell, John J., 2007. "Board Composition, Corporate Performance, and the Cadbury Committee Recommendation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(03), pages 535-564, September.
  17. Vidhi Chhaochharia & Yaniv Grinstein, 2009. "CEO Compensation and Board Structure," Journal of Finance, American Finance Association, vol. 64(1), pages 231-261, 02.
  18. Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, vol. 62(1), pages 217-250, 02.
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