Biased Boards

56 Pages Posted: 8 Dec 2023

See all articles by Tim Baldenius

Tim Baldenius

Columbia University - Columbia Business School

Xiaojing Meng

New York University (NYU) - Department of Accounting

Lin Qiu

Purdue University

Date Written: August 23, 2018


We study a corporate board tasked with monitoring a firm’s CEO and providing incrementally decision-relevant information. The board has both compensation and non-pecuniary incentives—we label the latter board bias. Friendly boards have muted information gathering incentives but can more effectively engage in cheap-talk communication with management. As a result, the direction of the optimal board bias is determined by the CEO’s initial information advantage: the board should be weakly friendly if the CEO is endowed with precise information, and weakly antagonistic (to the CEO) otherwise. Aside from assembling a friendly board, another way for shareholders to foster CEO/board communication is by granting the CEO more equity. In general, we find board friendliness and CEO equity grants to be positively associated, in equilibrium. This provides an optimal contracting rationale for an empirical regularity often interpreted as friendly boards facilitating rent extraction.

Keywords: boards of directors, executive compensation, friendly boards, cheap talk, managerial power view

JEL Classification: D21, D86, G34, M41

Suggested Citation

Baldenius, Tim and Meng, Xiaojing and Qiu, Lin, Biased Boards (August 23, 2018). Available at SSRN: or

Tim Baldenius

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Xiaojing Meng

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street
Suite 10-180
New York, NY 10012
United States

Lin Qiu (Contact Author)

Purdue University ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

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