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Corporate Board Composition, Protocols, and Voting Behavior: Experimental Evidence

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  • Ann B. Gillette

    (Faculty of Georgia State University)

  • Thomas H. Noe

    (Faculty of Tulane University)

  • Michael J. Rebello

    (Faculty of Georgia State University)

Abstract

We examine voting by a board designed to mitigate conflicts of interest between privately informed insiders and owners. Our model demonstrates that, as argued by researchers and the business press, boards with a majority of trustworthy but uninformed "watchdogs" can implement institutionally preferred policies. Our laboratory experiments strongly support this conclusion. Our model also highlights the necessity of penalties on insiders when there is dissension among board members. However, penalties for dissent appeared to have little impact on the experimental outcomes. Copyright (c) 2003 by the American Finance Association.

Suggested Citation

  • Ann B. Gillette & Thomas H. Noe & Michael J. Rebello, 2003. "Corporate Board Composition, Protocols, and Voting Behavior: Experimental Evidence," Journal of Finance, American Finance Association, vol. 58(5), pages 1997-2032, October.
  • Handle: RePEc:bla:jfinan:v:58:y:2003:i:5:p:1997-2032
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    Cited by:

    1. Renee B. Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2010. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 58-107, March.
    2. Gillet, Joris & Schram, Arthur & Sonnemans, Joep, 2011. "Cartel formation and pricing: The effect of managerial decision-making rules," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 126-133, January.
    3. Lucian A. Bebchuk & Michael S. Weisbach, 2010. "The State of Corporate Governance Research," NBER Chapters,in: Corporate Governance National Bureau of Economic Research, Inc.
    4. Cheung, Yan-Leung & Chung, Cheong-Wing & Tan, Weiqiang & Wang, Wenming, 2013. "Connected board of directors: A blessing or a curse?," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3227-3242.
    5. Crespí-Cladera, Rafel & Pascual-Fuster, Bartolomé, 2014. "Does the independence of independent directors matter?," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 116-134.
    6. Ricardo Leal & André Carvalhal-da-Silva, 2005. "Corporate Governance and Value in Brazil (and in Chile)," Research Department Publications 3208, Inter-American Development Bank, Research Department.
    7. Uddin, Md Hamid, 2016. "Effect of government share ownership on corporate risk taking: Case of the United Arab Emirates," Research in International Business and Finance, Elsevier, vol. 36(C), pages 322-339.
    8. Ricardo Leal & André Carvalhal-da-Silva, 2005. "Conducción y valor empresarial en Brasil (y Chile)," Research Department Publications 3209, Inter-American Development Bank, Research Department.
    9. Ahmed, Anwer S. & Duellman, Scott, 2007. "Accounting conservatism and board of director characteristics: An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 43(2-3), pages 411-437, July.
    10. Yan-Leung Cheung & In-Mu Haw & Weiqiang Tan & Wenming Wang, 2014. "Board Structure and Intragroup Propping: Evidence from Family Business Groups in Hong Kong," Financial Management, Financial Management Association International, vol. 43(3), pages 569-601, September.
    11. Rui Albuquerque & Jianjun Miao, 2013. "CEO Power, Compensation, and Governance," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 443-479, November.
    12. Thomas J. Chemmanur & Viktar Fedaseyeu, 2012. "A Theory of Corporate Boards and Forced CEO Turnover," Working Papers 444, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    13. Audretsch, David B. & Hülsbeck, Marcel & Lehmann, Erik E., 2013. "Families as active monitors of firm performance," Journal of Family Business Strategy, Elsevier, vol. 4(2), pages 118-130.
    14. Fernando Lefort & Eduardo Walker, 2005. "El efecto de las prácticas de gobierno corporativo sobre la valuación de mercado y políticas de pago de compañías chilenas," Research Department Publications 3211, Inter-American Development Bank, Research Department.
    15. Johan Devriese & Mathias Dewatripont & Dirk Heremans & Grégory Nguyen, 2004. "Corporate governance, regulation and supervision of banks," Financial Stability Review, National Bank of Belgium, vol. 2(1), pages 95-120, June.
    16. Andrea Melis & Silvia Carta & Silvia Gaia, 2012. "Executive remuneration in blockholder-dominated firms. How do Italian firms use stock options?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(3), pages 511-541, August.
    17. Fernando Lefort & Eduardo Walker, 2005. "The Effect of Corporate Governance Practices on Company Market Valuation and Payout Policy in Chile," Research Department Publications 3210, Inter-American Development Bank, Research Department.
    18. Amegashie, J. Atsu & Cadsby, C. Bram & Song, Yang, 2007. "Competitive burnout: Theory and experimental evidence," Games and Economic Behavior, Elsevier, vol. 59(2), pages 213-239, May.
    19. repec:cuf:journl:y:2013:v:14:i:1:n:2:albuquerque is not listed on IDEAS

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