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Board composition and CEO power

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  • Baldenius, Tim
  • Melumad, Nahum
  • Meng, Xiaojing

Abstract

We study the optimal composition of corporate boards. Directors can be either monitoring or advisory types. Monitoring constrains the empire-building tendency of chief executive officers (CEOs). If shareholders control the board nomination process, a non-monotonic relation ensues between agency problems and board composition. To preempt CEO entrenchment, shareholders may assemble an adviser-heavy board. If a powerful CEO influences the nomination process, this may result in a more monitor-heavy board. Regulations strengthening the monitoring role of boards can be harmful in precisely those cases in which agency problems are severe or in which CEO entrenchment is a threat to corporate governance.

Suggested Citation

  • Baldenius, Tim & Melumad, Nahum & Meng, Xiaojing, 2014. "Board composition and CEO power," Journal of Financial Economics, Elsevier, vol. 112(1), pages 53-68.
    • Handle: RePEc:eee:jfinec:v:112:y:2014:i:1:p:53-68
    DOI: 10.1016/j.jfineco.2013.10.004
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    More about this item

    Keywords

    Corporate governance; CEO power; Board composition;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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