Template-Type: ReDIF-Paper 1.0
Author-Name: Angelo Baglioni
Author-X-Name-First: Angelo
Author-X-Name-Last: Baglioni
Author-Email: angelo.baglioni@unicatt.it
Author-Name: Luca Colombo
Author-X-Name-First: Luca
Author-X-Name-Last: Colombo
Author-Email: lucava.colombo@unicatt.it
Author-Workplace-Name: DISCE, Università Cattolica
Title: The efficiency view of corporate boards: theory and evidence
Abstract: We build a simple model in which corporate governance may allow for institutions acting
as commitment devices (e.g., the introduction of independent and minority members
in the board). The model predicts that the incentive to adopt an institution — letting
the general interest of shareholders prevail over private benefits of control by dominant
shareholders — is decreasing in ownership concentration and increasing in free cash flow.
We take the predictions of our theoretical model to the data, by providing empirical
evidence on the board structure of Italian listed companies over the period 2004-2007.
We find that board composition favors independent members in firms where the free
cash flow is large, and executive members in firms with high ownership concentration
and in family firms, supporting the view of corporate governance as a mechanism to
control agency costs. More ambiguous conclusions are reached as for the link between
governance and firm value, as the presence of minority lists in the board appears to improve value while that of independent members reduces performance.
Length: 28 pag
Creation-Date: 2010-07
File-URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0096.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: ief0096
Classification-JEL: G32, G34, L22
Keywords: corporate boards, agency problems, private benefits, firms’ performance.
Handle: RePEc:ctc:serie3:ief0096