When Does Ownership Matter? Board Characteristics and Behavior

Strategic Management Journal 34 (7), 823-842

41 Pages Posted: 6 Mar 2011 Last revised: 21 Mar 2015

See all articles by Kurt A. Desender

Kurt A. Desender

Universidad Carlos III de Madrid

Ruth V. Aguilera

Northeastern University - Department of International Business and Strategy

Rafel Crespí-Cladera

Universitat Illes Balears (UIB), Dep. Economia i Empresa

Miguel A. García-Cestona

Universitat Autonoma de Barcelona (UAB) - Department d'Economia de l'Empresa

Date Written: March 2, 2012

Abstract

We extend agency theory with the notion that boards have distinct incentives and abilities to monitor management and develop a contingency approach to explain how firm ownership influences the monitoring function of the board — measured as the magnitude of external audit fees contracted by the board. Analyzing Continental European companies, our results demonstrate that while audit services and board independence are complementary when ownership is dispersed, this is not the case when ownership is concentrated. This suggests that ownership concentration and board composition become substitutes in terms of monitoring management. Additional analysis shows that the relationship between board composition and external audit fees is also contingent upon the identity of the controlling shareholder. We uncover that the influence of board characteristics on audit fees is larger for family and non-financial controlled firms than for bank controlled firms, relative to firms with dispersed ownership. In total, we find that board monitoring is contingent on the firm’s ownership structure, which demonstrates that board strategic behavior is contextually dependent. We argue that theory and empirical research in corporate governance should progress to a more context dependent analysis, which, in turn, will prove useful for practitioners and policy makers.

Keywords: Board of directors, monitoring, corporate governance, ownership structure, audit

Suggested Citation

Desender, Kurt A. and Aguilera, Ruth V. and Crespi-Cladera, Rafel and García Cestona, Miguel Ángel, When Does Ownership Matter? Board Characteristics and Behavior (March 2, 2012). Strategic Management Journal 34 (7), 823-842. Available at SSRN: https://ssrn.com/abstract=1774684 or http://dx.doi.org/10.2139/ssrn.1774684

Kurt A. Desender (Contact Author)

Universidad Carlos III de Madrid ( email )

Calle de Madrid, 123
Getafe, 28903
Spain

Ruth V. Aguilera

Northeastern University - Department of International Business and Strategy ( email )

Boston, MA 02115
United States

Rafel Crespi-Cladera

Universitat Illes Balears (UIB), Dep. Economia i Empresa ( email )

Crta. de Valldemossa km 7, 5
07071 Palma Mallorca
Spain
+34 971 173273 (Phone)
+34 971 173426 (Fax)

Miguel Ángel García Cestona

Universitat Autonoma de Barcelona (UAB) - Department d'Economia de l'Empresa ( email )

Campus Bellaterra, Edifici B.
Bellaterra (Barcelona), 08193
Spain
+34 93 5812147 (Phone)
+34 93 5812555 (Fax)

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