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A Theory of Board Control and Size

Posted: 8 Aug 2008  

Multiple version iconThere are 2 versions of this paper

Date Written: July 2008

Abstract

This article presents a model of optimal control of corporate boards of directors. We determine when one would expect inside versus outside directors to control the board, when the controlling party will delegate decision-making to the other party, the extent of communication between the parties, and the number of outside directors. We show that shareholders can sometimes be better off with an insider-controlled board. We derive endogenous relationships among profits, board control, and the number of outside directors that call into question the usual interpretation of some documented empirical regularities.

JEL Classification: G34

Suggested Citation

Harris, Milton and Raviv, Artur, A Theory of Board Control and Size (July 2008). The Review of Financial Studies, Vol. 21, Issue 4, pp. 1797-1832, 2008. Available at SSRN: https://ssrn.com/abstract=1211938 or http://dx.doi.org/10.1093/rfs/hhl030

Milton Harris (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
(773) 702-2549 (Phone)
(773) 753-8310 (Fax)

HOME PAGE: http://faculty.chicagobooth.edu/milton.harris/

Artur Raviv

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8342 (Phone)
847-491-5719 (Fax)

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