Examining the Relationships between Monitoring and Incentives in Corporate Governance

17 Pages Posted: 26 Mar 2007

See all articles by Matthew A. Rutherford

Matthew A. Rutherford

James Madison University - College of Business

Ann K. Buchholtz

University of Georgia - C. Herman and Mary Virginia Terry College of Business

Jill A. Brown

Bentley University

Abstract

Agency theory focuses on monitoring and incentives as two solutions to agency problems. Prior research suggests that monitoring and incentives may act either as substitutes or as complements, and that the context of the agency relationship plays a major role in determining the direction of the relationship between them. In a corporate governance setting, we contend that board information and boards' usage of CEO control mechanisms are best viewed as complements. Thus, we hypothesize that boards' information gathering behavior will be positively related to boards' usage of CEO control mechanisms. Using primary and secondary data from 149 US firms, we find that increases in boards' information gathering are associated with increases in boards' usage of managerial controls. These findings suggest that information and managerial control mechanisms act as complements in the governance context, and that boards take a variety of actions to protect the interests of shareholders.

Suggested Citation

Rutherford, Matthew A. and Buchholtz, Ann K. and Brown, Jill A., Examining the Relationships between Monitoring and Incentives in Corporate Governance. Journal of Management Studies, Vol. 44, Issue 3, pp. 414-430, May 2007, Available at SSRN: https://ssrn.com/abstract=976217 or http://dx.doi.org/10.1111/j.1467-6486.2007.00683.x

Matthew A. Rutherford (Contact Author)

James Madison University - College of Business ( email )

Harrisonburg, VA 22807
United States

Ann K. Buchholtz

University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )

Brooks Hall
Athens, GA 30602-6254
United States

Jill A. Brown

Bentley University ( email )

175 Forest St
Waltham, MA 02452
United States

HOME PAGE: http://https://faculty.bentley.edu/details.asp?uname=jbrown

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