The Powers that Be: Concentration of Authority Within the Board of Directors and Variability in Firm Performance
52 Pages Posted: 19 Jan 2019 Last revised: 29 Oct 2019
Date Written: September 18, 2019
In this study, we examine how the concentration of authority within the board of directors affects the variability of firm performance. Using directors' committee assignments as a proxy for decision-making power, we develop two unique measures of board concentration of authority. We find that firms with greater concentration of power within their boards have higher variability in firm performance. In additional tests, we demonstrate that our results are not driven by endogeneity bias. Finally, we also show concentrated boards adopt more extreme corporate strategies, providing several different mechanisms through which board concentration of power affects firm performance volatility.
Keywords: Authority, Board of Directors, Corporate Governance, Decision-making Power, Delegation, Firm Performance, Variability
JEL Classification: G30, G34, L14
Suggested Citation: Suggested Citation