Board Structure and Role of Outside Directors in Private Firms

European Financial Management, Forthcoming

54 Pages Posted: 28 Dec 2013 Last revised: 12 Jul 2018

See all articles by Huasheng Gao

Huasheng Gao

Fanhai International School of Finance, Fudan University

Zhongda He

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

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Date Written: June 27, 2018

Abstract

We examine the board composition and the role of outside directors in U.S. private firms. We find that compared with public firms, private firms have a higher proportion of outside directors on the boards and select their outside directors in a more responsive way to their advisory and monitoring needs. We also find that private firms’ CEO turnover-performance sensitivity, earnings quality, going-public likelihood, and IPO value increase with the proportion of outside directors. These results are consistent with the view that lack of external governance in private firms leads to a greater demand for board monitoring for private firms.

Keywords: Private firms, Public firms, Outside director, Monitoring role, Advisory role, Earnings quality, External governance, Information environment

JEL Classification: G32, G34, L22

Suggested Citation

Gao, Huasheng and He, Zhongda, Board Structure and Role of Outside Directors in Private Firms (June 27, 2018). European Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2371992 or http://dx.doi.org/10.2139/ssrn.2371992

Huasheng Gao

Fanhai International School of Finance, Fudan University ( email )

Beijing West District Baiyun Load 10th
Shanghai, 100045
China
2165642222 (Phone)
2165642222 (Fax)

Zhongda He (Contact Author)

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

Room 807, Academic Hall
39 South College Road, CUFE
Beijing, Beijing 100081
China
86-10-62289266 (Phone)

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