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Regulation and the Evolution of Corporate Boards: Monitoring, Advising or Window Dressing?

  • Eric Helland

    (Claremont McKenna College)

  • Michael Sykuta

    (University of Missouri - Columbia)

It is generally agreed that boards are endogenously determined institutions that serve both an oversight and advisory role in a firm. While oversight role of boards has been extensively studied relatively few studies have examined the advisory role of corporate boards. In this study we examine the participation of "political" directors on the boards of natural gas companies between 1930 and 1998. We focus on the 1938, and 1954 regulation and 1986 partial deregulation of the natural gas industry. Using datasets covering the period from 1930 to 1990 and 1978 to 1998, we test whether regulation and deregula tion altered the composition of companies’ boards as the firms’ environment changed. In particular, did regulation cause an increase and deregulation a decrease, in the number of "political" directors on corporate boards? We find evidence that the number of "political" directors increases as firms shift from market to political competition. Specifically the regulation of natural gas is associated with an increase in the number of "political" directors and the deregulation is associated with a decrease in the number of "political" directors on boards.

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Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2002-27.

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Date of creation: Aug 2002
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Handle: RePEc:clm:clmeco:2002-27
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  1. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1988. "Alternative Mechanisms for Corporate Control," NBER Working Papers 2532, National Bureau of Economic Research, Inc.
  2. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58.
  3. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
  4. Demsetz, Harold, 1988. "The Theory of the Firm Revisited," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 141-61, Spring.
  5. Romano, Roberta, 1996. "Corporate Law and Corporate Governance," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 277-339.
  6. David J. Salant, 1995. "Behind the Revolving Door: A New View of Public Utility Regulation," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 362-377, Autumn.
  7. 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.
  8. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January.
  9. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  10. Agrawal, Anup & Knoeber, Charles R, 2001. "Do Some Outside Directors Play a Political Role?," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 179-98, April.
  11. Benjamin E. Hermalin & Michael S. Weisbach, 1988. "The Determinants of Board Composition," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 589-606, Winter.
  12. Geddes, Rick & Vinod, Hrishikesh D, 2002. "CEO Tenure, Board Composition, and Regulation," Journal of Regulatory Economics, Springer, vol. 21(2), pages 217-35, March.
  13. Spiller, Pablo T, 1990. "Politicians, Interest Groups, and Regulators: A Multiple-Principals Agency Theory of Regulation, or "Let Them Be Bribed."," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 65-101, April.
  14. Richard A. Posner, 1974. "Theories of Economic Regulation," NBER Working Papers 0041, National Bureau of Economic Research, Inc.
  15. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
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