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Managers and Directors: a Model of Strategic Information Transmission

Author

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  • Gutierrez-Urtiaga, M.

Abstract

This paper models the process of policy making at the top level of the firm: its board of directors. Directors are expected to both advise and monitor the CEO to ensure that shareholders' wealth is maximized. The more independent directors are the better they will fullfil this fiduciary duty. However, the flow of information that the board receives is controlled by the CEO, who will strategically use it in ways that depend on the structure of the board. The model makes three predictions: (i) It is possible to have too many independent directors. (ii) The optimal proportion of independents is higher for firms in ``high-growth'' environments. (iii) When independent directors value their reputation the proportion of independents will raise after a sequence of bad results.

Suggested Citation

  • Gutierrez-Urtiaga, M., 2000. "Managers and Directors: a Model of Strategic Information Transmission," Papers 0003, Centro de Estudios Monetarios Y Financieros-.
    • Handle: RePEc:fth:cemfdt:0003
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    Cited by:

    1. Josep Pijoan-Mas, 2006. "Precautionary Savings or Working Longer Hours?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 326-352, April.

    More about this item

    Keywords

    MANAGERS ; BUSINESS FINANCING ; OWNERSHIP;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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