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The Efficiency View of Corporate Boards: Theory and Evidence

Author

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  • Angelo Baglioni

    (Catholic University - Milano - Catholic University - Milano)

  • Luca V.A. Colombo

    (Catholic University - Milano - Catholic University - Milano)

Abstract

We build a model in which corporate governance allows for the adoption of an institution acting as a mechanism to control agency problems. Our model predicts that the incentive to adopt such an institution is decreasing in ownership concentration and increasing in free cash flow. Testing our theoretical model by means of a sample of 157 Italian listed companies over the period 2004-2007, we find that board composition favors independent members in firms with a large free cash flow, and executive members in firms with high ownership concentration, supporting the view of governance as a way to limit agency costs.

Suggested Citation

  • Angelo Baglioni & Luca V.A. Colombo, 2011. "The Efficiency View of Corporate Boards: Theory and Evidence," Post-Print hal-00737930, HAL.
    • Handle: RePEc:hal:journl:hal-00737930
    DOI: 10.1080/00036846.2011.605764
    Note: View the original document on HAL open archive server: https://hal.science/hal-00737930
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    Cited by:

    1. Isabel Acero & Nuria Alcalde, 2016. "Controlling shareholders and the composition of the board: special focus on family firms," Review of Managerial Science, Springer, vol. 10(1), pages 61-83, January.
    2. Giuseppe Mastromatteo, 2011. "The Debate on the Crisis: Recent Reappraisals of the Concept of Functional Finance," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0105, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    3. Acero, Isabel & Alcalde, Nuria, 2021. "Institutional context as a moderator of the relationship between board structure and acquirer returns," Research in International Business and Finance, Elsevier, vol. 57(C).
    4. Sandro Brusco & Luca Colombo & Umberto Galmarini, 2010. "Local Governments Tax Autonomy, Lobbying, and Welfare," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0097, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    5. Mareva Sabatier, 2015. "A women's boom in the boardroom: effects on performance?," Applied Economics, Taylor & Francis Journals, vol. 47(26), pages 2717-2727, June.
    6. Francesco Badia & Graziana Galeone & Simona Ranaldo, 2021. "La crisi COVID-19 come "crash-test" per i sistemi di controllo aziendali: il caso di un?azienda di trasporto pubblico locale," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2021(1), pages 57-80.
    7. Murad Harasheh & Roberta Provasi, 2023. "A need for assurance: Do internal control systems integrate environmental, social, and governance factors?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(1), pages 384-401, January.
    8. Giuseppe Mastromatteo, 2011. "H.P. Minsky And Policies To Countervail Crises," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0102, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    9. Acero Fraile, Isabel & Alcalde Fradejas, Nuria, 2014. "Ownership structure and board composition in a high ownership concentration context," European Management Journal, Elsevier, vol. 32(4), pages 646-657.
    10. Stefania Veltri & Romilda Mazzotta, 2016. "The Association of Board Composition, Intellectual Capital and Firm Performance in a High Ownership Concentration Context: Evidence from Italy," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(10), pages 317-317, September.
    11. Regina M. Lizares, 2022. "Ownership concentration and board structure: Alignment and entrenchment effects in an emerging market," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2557-2569, September.

    More about this item

    Keywords

    Social Sciences & Humanities;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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