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

Posted: 17 Apr 2005

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

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: G34, K22

Suggested Citation

Helland, Eric A. and Sykuta, Michael E., Who's Monitoring the Monitor? Do Outside Directors Protect Shareholders' Interests?. Financial Review, Vol. 40, No. 2, May 2005. Available at SSRN: https://ssrn.com/abstract=695363

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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HOME PAGE: http://michaelsykuta.com

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