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Corporate Board Composition, Protocols, and Voting Behavior: Experimental Evidence
Author(s) -
Gillette Ann B.,
Noe Thomas H.,
Rebello Michael J.
Publication year - 2003
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/1540-6261.00595
Subject(s) - trustworthiness , voting , dissent , composition (language) , business , public relations , accounting , shareholder , on board , law and economics , political science , corporate governance , internet privacy , economics , computer science , law , finance , engineering , linguistics , philosophy , politics , aerospace engineering
We examine voting by a board designed to mitigate conflicts of interest between privately informed insiders and owners. Our model demonstrates that, as argued by researchers and the business press, boards with a majority of trustworthy but uninformed “watchdogs” can implement institutionally preferred policies. Our laboratory experiments strongly support this conclusion. Our model also highlights the necessity of penalties on insiders when there is dissension among board members. However, penalties for dissent appeared to have little impact on the experimental outcomes.