Competition and Managerial Incentives: Board Independence, Information, and Predation

The Journal of Industrial Economics, Forthcoming

34 Pages Posted: 27 Sep 2011  

George Kanatas

Rice University - Jesse H. Jones Graduate School of Business

Jianping Qi

University of South Florida - College of Business Administration

Date Written: July 11, 2011

Abstract

We show that the choice of an independent board serves as a commitment by management that it will abstain from ex post decisions that are not in shareholder interests. However, an independent board, relying on product market information to make or approve strategic decisions, also makes the firm more vulnerable to predatory information manipulation by its industry rivals. The optimal board type trades off the cost of the agency problem with that from predation. We show that only for weaker firms is an independent board the better choice, and for such firms, increased competition makes board independence even more beneficial.

Suggested Citation

Kanatas, George and Qi, Jianping, Competition and Managerial Incentives: Board Independence, Information, and Predation (July 11, 2011). The Journal of Industrial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1933945

George Kanatas

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
713-348-5383 (Phone)
713-348-5251 (Fax)

Jianping Qi (Contact Author)

University of South Florida - College of Business Administration ( email )

USF College of Business
4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States
813-974-9856 (Phone)
813-974-3084 (Fax)

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