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Why do firms have boards?

Author

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  • Bennedsen, Morten

    (Department of Economics, Copenhagen Business School)

Abstract

In a world where corporate boards are not required by law, I identify a governance and a distribute motive for board establishment and board composition. I investigate the presence of these motives in a sample of 23.000+ closely held corporations. Board frequency increases with more owners, if control is diluted and in larger firms. Given firms have a board, non-controlling owners are more likely to be on the board when controlling owners are more powerful. Finally, consistent with an equilibrium interpretation of strategic board establishment, I find little effect of the presence of boards on performance. I conclude that both motives are significant and discuss related corporate governance implications.

Suggested Citation

  • Bennedsen, Morten, 2002. "Why do firms have boards?," Working Papers 03-2002, Copenhagen Business School, Department of Economics.
  • Handle: RePEc:hhs:cbsnow:2002_003
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    File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7624
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    References listed on IDEAS

    as
    1. Svend Albæk & Peter Møllgaard & Per Baltzer Overgaard, 1997. "Government-Assisted Oligopoly Coordination? A Concrete Case," CIE Discussion Papers 1997-03, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    2. Polinsky, A Mitchell & Shavell, Steven, 1992. "Enforcement Costs and the Optimal Magnitude and Probability of Fines," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 133-148, April.
    3. H. Peter Møllgaard & Per Baltzer Overgaard, 2001. "Market Transparency and Competition Policy," Rivista di Politica Economica, SIPI Spa, vol. 91(4), pages 11-64, April-May.
    4. H. Peter Møllgaard & Per Baltzer Overgaard, 1999. "Market Transparency: A Mixed Blessing?," CIE Discussion Papers 1999-15, University of Copenhagen. Department of Economics. Centre for Industrial Economics, revised Feb 2000.
    5. Albaek, Svend & Mollgaard, Peter & Overgaard, Per B, 1997. "Government-Assisted Oligopoly Coordination? A Concrete Case," Journal of Industrial Economics, Wiley Blackwell, vol. 45(4), pages 429-443, December.
    6. Kai-Uwe Kühn, 2001. "Fighting collusion by regulating communication between firms," Economic Policy, CEPR;CES;MSH, vol. 16(32), pages 167-204, April.
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    Cited by:

    1. 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.
    2. Bennedsen, Morten & Kongsted, Hans Christian & Nielsen, Kasper Meisner, 2008. "The causal effect of board size in the performance of small and medium-sized firms," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1098-1109, June.

    More about this item

    Keywords

    Boards; governance; distributive conflicts; ultimate ownership;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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