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Outside directors and board advising and monitoring performance

Author

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  • Kim, Kyonghee
  • Mauldin, Elaine
  • Patro, Sukesh

Abstract

Divergent views exist about whether boards must tradeoff advising for monitoring performance when utilizing outside versus inside directors. We suggest a dichotomous tradeoff focus underestimates outside directors׳ impact on board performance. We find outside director tenure positively associated with firm acquisition/investment policy advising performance and CEO compensation monitoring performance, suggesting that advising and monitoring do not always compete for directors׳ time. However, tenure is not a panacea – it marginally weakens financial reporting monitoring performance which is instead enhanced by outside directors׳ financial expertise. Overall, the results suggest outside director tenure and diverse expertise support both advising and monitoring performance.

Suggested Citation

  • Kim, Kyonghee & Mauldin, Elaine & Patro, Sukesh, 2014. "Outside directors and board advising and monitoring performance," Journal of Accounting and Economics, Elsevier, vol. 57(2), pages 110-131.
  • Handle: RePEc:eee:jaecon:v:57:y:2014:i:2:p:110-131
    DOI: 10.1016/j.jacceco.2014.02.001
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    More about this item

    Keywords

    Advising; Board of directors; Director tenure; Director skill; Financial expertise; Monitoring;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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