Why Do Firms Have Boards?

42 Pages Posted: 18 Mar 2002

See all articles by Morten Bennedsen

Morten Bennedsen

INSEAD - Economics and Political Sciences; University of Copenhagen - Department of Economics

Date Written: March 11, 2002

Abstract

In a world where corporate boards are not required by law, I identify a governance and a distributive motive for board establishment and board composition. I investigate the presence of these motives in a sample of 23.000+ closely held corporations. Board frequency increases with more owners, if control is diluted and in larger firms. Given firms have a board, non-controlling owners are more likely to be on the board when controlling owners are more powerful. Finally, consistent with an equilibrium interpretation of strategic board establishment, I find little effect of the presence of boards on performance. I conclude that both motives are significant and discuss related corporate governance implications.

Keywords: corporate boards, governance, distributive conflicts, ultimate ownership

JEL Classification: G3, L22

Suggested Citation

Bennedsen, Morten, Why Do Firms Have Boards? (March 11, 2002). Available at SSRN: https://ssrn.com/abstract=303680 or http://dx.doi.org/10.2139/ssrn.303680

Morten Bennedsen (Contact Author)

INSEAD - Economics and Political Sciences ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5, Bygn 26
Copenhagen, 1353
Denmark

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