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Why Do Boards Exist? Governance Design in the Absence of Corporate Law

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  • Mike Burkart
  • Salvatore Miglietta
  • Charlotte Ostergaard

Abstract

We study under which circumstances firms choose to install boards and their roles in a historical setting in which neither boards nor their duties are mandated by law. Boards arise in firms with large, heterogeneous shareholder bases. We propose that an important role of boards is to mediate between heterogeneous shareholders with divergent interests. Voting restrictions are common and ensure that boards are representative and not captured by large blockholders. Boards are given significant powers to both mediate and monitor management, and these roles are intrinsically linked.

Suggested Citation

  • Mike Burkart & Salvatore Miglietta & Charlotte Ostergaard, 2023. "Why Do Boards Exist? Governance Design in the Absence of Corporate Law," The Review of Financial Studies, Society for Financial Studies, vol. 36(5), pages 1788-1836.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:5:p:1788-1836.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac072
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    More about this item

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • K2 - Law and Economics - - Regulation and Business Law
    • N80 - Economic History - - Micro-Business History - - - General, International, or Comparative

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