Why Do Boards Exist? Governance Design in the Absence of Corporate Law
64 Pages Posted: 26 Aug 2018
Date Written: August 2018
We study how owners trade off the costs and benefits of boards in a historical setting where neither a board nor its duties are mandated by statutory law. From the powers given to boards, which vary across firms, we identify three different roles: Monitoring, mediation, and advice. Boards arise when the shareholder base includes numerous small shareholders, rather than from an absence of blockholders who are widespread in our firms. Voting restrictions prevent large shareholders from dominating boards and induce them to mediate between large and small shareholder interests, in addition to monitoring management.
Keywords: Boards, Corporate Governance, Collective Action, Authority, Private Contracting
JEL Classification: G3, D23, K2, N80
Suggested Citation: Suggested Citation