Freedom of Choice between Unitary and Two-Tier Boards: An Empirical Analysis
58 Pages Posted: 3 Feb 2014
Date Written: October 1, 2013
We examine board structure in France, which since 1966 has allowed firms freedom to choose between unitary and two-tier boards. We analyze how this choice relates to characteristics of the firm and its environment. Firms with severe asymmetric information tend to opt for unitary boards; firms with a potential for private benefits extraction tend to adopt two-tier boards. There is enhanced sensitivity of CEO turnover to performance at firms with two-tier boards, indicating greater monitoring. Our results are broadly consistent with the Adams and Ferreira (2007) model and suggest there are gains from allowing freedom of contract about board structure.
Keywords: Board of directors, two-tier board, unitary board, corporate governance, monitoring
JEL Classification: G32; G34
Suggested Citation: Suggested Citation