Posted: 8 Aug 2008
Date Written: July 2008
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: 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