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Monitoring to Reduce Agency Costs: Examining the Behavior of Independent and Non-Independent Boards

Author

Listed:
  • Frank Milne

    () (Queen's University)

  • Lynnette Purda

    (Queen's University)

  • Anita Anand

    (University of Toronto)

Abstract

Berle and Means's analysis of the corporation--in particular, their view that those in control are not the owners of the corporation--raises questions about actions that corporations take to counter concerns regarding management's influence. What mechanisms, if any, do corporations implement to balance the distribution of power in the corporation? To address this question, we analyze boards of directors' propensity to voluntarily adopt recommended corporate governance practices. Because board independence is one way to enhance shareholders' ability to monitor management, we probe whether firms with independent boards of directors (which we define as boards with either an independent chair or a majority of independent directors) are more likely than firms without independent boards to adopt these practices. We focus on boards' willingness to monitor their firms' agents, examining the relationship between board independence and the voluntary adoption of corporate governance guidelines.

Suggested Citation

  • Frank Milne & Lynnette Purda & Anita Anand, 2010. "Monitoring to Reduce Agency Costs: Examining the Behavior of Independent and Non-Independent Boards," Working Papers 1243, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:1243
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1243.pdf
    File Function: First version 2010
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    More about this item

    Keywords

    Corporate Governance; Agency Costs; Monitoring; Independent Boards;

    JEL classification:

    • D - Microeconomics
    • G - Financial Economics
    • K - Law and Economics
    • L - Industrial Organization

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