When Do Outside Directors Create Corporate Value?
44 Pages Posted: 3 Nov 2006
Date Written: May 2006
Abstract
This paper shows that the proportion of outside (nonmanagement) directors is related to positive corporate performance only when corporate antitakeover protection is low. We interpret these results as evidence that the threat of termination of the directorship through the risk of a disciplining takeover is a powerful mechanism to align the interests of outside directors and shareholders. We find out that the negative effect on the incentives of outsiders seems to be driven by those provisions that are used to delay hostile takeover attempts and by those state laws that make harder the success of takeovers.
Keywords: Corporate Governance, directors, board composition, directors' incentives, market of corporate control
JEL Classification: G34, K22
Suggested Citation: Suggested Citation
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