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Expertise, Structure, and Reputation of Corporate Boards

64 Pages Posted: 20 Jun 2011 Last revised: 6 Jul 2012

Doron Levit

University of Pennsylvania - Finance Department

Date Written: July 1, 2012

Abstract

This paper studies the optimal structure of the board with an emphasis on the expertise of directors. The analysis provides three main results. First, the expertise of a value-maximizing board can harm shareholder value. Second, it is optimal to design a board whose members are biased against the manager, especially when their expertise is high. Third, directors' desire to demonstrate expertise can shift power from the board to the manager on the expense of shareholders. The effect of these reputation concerns is amplified when the communication within the boardroom is transparent.

Keywords: Board of Directors, Communication, Information Acquisition, Expertise, Reputation, Transparency

JEL Classification: D74, D82, D83, L14, G34

Suggested Citation

Levit, Doron, Expertise, Structure, and Reputation of Corporate Boards (July 1, 2012). Available at SSRN: https://ssrn.com/abstract=1866384 or http://dx.doi.org/10.2139/ssrn.1866384

Doron Levit (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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