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

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  • Burkart, Mike
  • Miglietta, Salvatore
  • Ostergaard, Charlotte

Abstract

We study how owners trade off the costs and benefits of establishing a board in a historical setting, where boards are optional and authority over corporate decisions can be freely allocated across the general meeting, the board, and management. We find that informed owners and boards are substitutes, and that boards exist in firms most prone to collective action problems. Boards monitor, advise, and mediate among shareholders, and these different roles entail different allocations of authority. Boards also arise to balance the need for small shareholder protection with the need to curb managerial discretion.

Suggested Citation

  • Burkart, Mike & Miglietta, Salvatore & Ostergaard, Charlotte, 2017. "Why Do Boards Exist? Governance Design in the Absence of Corporate Law," CEPR Discussion Papers 12147, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12147
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    References listed on IDEAS

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    Cited by:

    1. Ewens, Michael & Malenko, Nadya, 2020. "Board dynamics over the startup life cycle," CEPR Discussion Papers 15024, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    authority allocation; Boards; corporate governance; private contracting;
    All these keywords.

    JEL classification:

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

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