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

Burkart, Mike; Miglietta, Salvatore; Ostergaard, Charlotte

doi:10.2139/ssrn.2902617

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

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

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)

There are 2 versions of this paper

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: 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