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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 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

  • Burkart, Mike & Miglietta, Salvatore & Ostergaard, Charlotte, 2023. "Why do boards exist? Governance design in the absence of corporate law," LSE Research Online Documents on Economics 119365, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:119365
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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • N80 - Economic History - - Micro-Business History - - - General, International, or Comparative

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