Explaining Corporate Governance: Boards, Bylaws, and Charter Provisions

Weinberg Center for Corporate Governance Working Paper No. 2003-03

49 Pages Posted: 14 Oct 2003

See all articles by Stuart Gillan

Stuart Gillan

University of Georgia - Department of Finance

Jay C. Hartzell

University of Texas at Austin - Department of Finance

Laura T. Starks

University of Texas at Austin - Department of Finance

Date Written: August 21, 2003

Abstract

We provide arguments and present evidence that corporate governance structures are endogenous responses to the costs and benefits firms face when they choose the mechanisms that comprise those structures. In particular, an industry's investment opportunities, product uniqueness, competitive environment, information environment, and leverage help explain its corporate governance. Examining groups of similar corporate governance mechanisms shows that firm and industry factors can have quite different associations (in strength and direction) with the monitoring capabilities of the board of directors versus the shareholder orientation of corporate charter provisions. Although industry factors play a dominant role in explaining an index of total governance, we find that firm and industry factors contribute almost equally in explaining the variation of sub-indices capturing aspects of board structure and charter provision use.

Keywords: Corporate Governance, Endogeneity, Board of Directors, Charter Provisions

JEL Classification: G30, G34

Suggested Citation

Gillan, Stuart L. and Hartzell, Jay C. and Starks, Laura T., Explaining Corporate Governance: Boards, Bylaws, and Charter Provisions (August 21, 2003). Weinberg Center for Corporate Governance Working Paper No. 2003-03. Available at SSRN: https://ssrn.com/abstract=442740 or http://dx.doi.org/10.2139/ssrn.442740

Stuart L. Gillan (Contact Author)

University of Georgia - Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Jay C. Hartzell

University of Texas at Austin - Department of Finance ( email )

1 University Station B6600
Austin, TX 78712
United States
512-471-6779 (Phone)
512-471-5073 (Fax)

HOME PAGE: http://www.mccombs.utexas.edu/faculty/jay.hartzell/

Laura T. Starks

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)

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