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Who's Monitoring the Monitor? Do Outside Directors Protect Shareholders' Interests?
Author(s) -
Helland Eric,
Sykuta Michael
Publication year - 2005
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2005.00098.x
Subject(s) - shareholder , corporate governance , accounting , business , enterprise value , gray (unit) , value (mathematics) , finance , statistics , medicine , radiology , mathematics
The corporate governance literature is rich with empirical tests of the relation between board composition and firm performance. We consider the effect of board composition on a different measure of performance, the probability a firm will be sued by shareholders. We find firms that are defendants in securities litigation have higher proportions of insiders and of gray directors and have smaller boards than a matched group of firms that are not sued, even when controlling for firm value and industry. The results suggest that boards with higher proportions of outside directors do a better job of monitoring management.