Why Do Boards Exist? Governance Design in the Absence of Corporate Law

83 Pages Posted: 25 Apr 2017 Last revised: 18 Dec 2020

See all articles by Mike Burkart

Mike Burkart

Swedish House of Finance; London School of Economics and Political Science, Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Salvatore Miglietta

BI Norwegian Business School, Department of Finance

Charlotte Ostergaard

BI Norwegian Business School, Department of Finance; European Corporate Governance Institute (ECGI)

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Date Written: October 31, 2020

Abstract

We study when firms choose to install boards and their roles in a historical setting where neither boards nor their duties are mandated by law. Boards arise in firms with large, heterogenous shareholder bases. We propose that an important role of boards is to mediate between heterogenous shareholders with divergent interests. Voting restrictions are common and ensure that boards are representative and not captured by large blockholders. Boards are given significant powers to both mediate and monitor management, but few boards mainly advise. Firms with boards are more prevalent in regions with a greater supply of small-investor finance.

Keywords: Board roles, ownership structure, voting, conflicts of interest, authority

JEL Classification: G3, D23, K2, N80.

Suggested Citation

Burkart, Mike C. and Miglietta, Salvatore and Ostergaard, Charlotte, Why Do Boards Exist? Governance Design in the Absence of Corporate Law (October 31, 2020). Swedish House of Finance Research Paper No. 17-8, 12th Annual Mid-Atlantic Research Conference in Finance (MARC), 2nd Annual Financial Institutions, Regulation and Corporate Governance Conference, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 504/2017, Available at SSRN: https://ssrn.com/abstract=2902617 or http://dx.doi.org/10.2139/ssrn.2902617

Mike C. Burkart

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

London School of Economics and Political Science, Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/default_static.htm

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Salvatore Miglietta

BI Norwegian Business School, Department of Finance ( email )

Nydalsveien 37
Oslo, NO-0442
Norway

Charlotte Ostergaard (Contact Author)

BI Norwegian Business School, Department of Finance ( email )

Nydalsveien 37
Oslo, 0442
Norway
+4746410520 (Phone)

HOME PAGE: http://home.bi.no/charlotte.ostergaard/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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