The Monitoring Role of Insiders

Posted: 11 Jul 2007 Last revised: 26 Jan 2018


Conventional wisdom suggests that giving monitored agents an oversight role may blunt the effectiveness of the monitoring process. In contrast, I show that less independent boards can sometimes be more effective at monitoring. Fully independent boards have incentives to shirk monitoring ex post, after the agents' productive inputs are sunk, if the boards cannot commit ex ante to monitoring. However, boards with inside directors may have incentives to monitor the agents ex post. The demand for insiders thus arises endogenously as they allow boards to indirectly commit to monitoring and thereby facilitate the monitoring process.

Keywords: Corporate governance, Board of directors, Monitoring, Commitment

JEL Classification: D80, G34, M40

Suggested Citation

Drymiotes, George, The Monitoring Role of Insiders. Journal of Accounting & Economics (JAE), Vol. 44, No. 3, pp. 359-377, December 2007, Available at SSRN:

George Drymiotes (Contact Author)

Texas Christian University ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817 257 5448 (Phone)

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