Board Monitoring and Advising in Dynamic Agency

European Accounting Review, Forthcoming

36 Pages Posted: 18 Feb 2021

See all articles by Svetlana Katolnik

Svetlana Katolnik

Leibniz Universität Hannover

Sandra Kronenberger

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management

Jens Robert Schöndube

Leibniz Universität Hannover

Date Written: February 15, 2021

Abstract

Intuition suggests that shareholders benefit from active boards. We present a model to show that if contract renegotiation is possible, then an active board might not always be desirable from the shareholders' perspective. This happens because low board activity may partially offset the distortion in the manager's incentives caused by the renegotiation option. While the value of low board activity stems from the board's weak monitoring, a strong measurement effect of the board's advising in the manager's performance measures is necessary to implement it. In this case, a sufficiently independent board motivates a low level of board activity.

Keywords: Corporate governance, Board monitoring, Board advising, Board composition, Managerial incentives

JEL Classification: D81, G34, M41

Suggested Citation

Katolnik, Svetlana and Kronenberger, Sandra and Schöndube, Jens Robert, Board Monitoring and Advising in Dynamic Agency (February 15, 2021). European Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3785964

Svetlana Katolnik

Leibniz Universität Hannover ( email )

Welfengarten 1
D-30167 Hannover, 30167
Germany

Sandra Kronenberger (Contact Author)

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management ( email )

Mainz
Germany

Jens Robert Schöndube

Leibniz Universität Hannover ( email )

30167
Germany

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