Who's Monitoring the Monitor? Do Outside Directors Protect Shareholders' Interests?

28 Pages Posted: 31 Dec 2003

See all articles by Eric Helland

Eric Helland

Claremont McKenna College - Robert Day School of Economics and Finance; RAND

Michael E. Sykuta

University of Missouri at Columbia - Division of Applied Social Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: June 2003

Abstract

The corporate governance literature is rich with empirical tests of the relation between board composition and firm performance. We consider the effect of board composition on a different measure of performance, the probability a firm will be sued by shareholders. We find firms that are defendants in securities litigation have higher proportions of insiders and of gray directors and have smaller boards than a matched group of firms that are not sued, even when controlling for firm value and industry. The results suggest that boards with higher proportions of outside directors do a better job of monitoring management.

Keywords: Board of directors, corporate governance, monitoring, shareholder lawsuits

JEL Classification: K33

Suggested Citation

Helland, Eric A. and Sykuta, Michael E., Who's Monitoring the Monitor? Do Outside Directors Protect Shareholders' Interests? (June 2003). CORI Working Paper No. 03-02. Available at SSRN: https://ssrn.com/abstract=481943 or http://dx.doi.org/10.2139/ssrn.481943

Eric A. Helland

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

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Michael E. Sykuta (Contact Author)

University of Missouri at Columbia - Division of Applied Social Sciences ( email )

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