NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature

Benjamin E. Hermalin, Michael S. Weisbach

NBER Working Paper No. 8161
Issued in March 2001
NBER Program(s):CF

This paper surveys the economic literature on boards of directors. Although a legal requirement for many organizations, boards are also an endogenously determined governance mechanism for addressing agency problems inherent to many organizations. Formal theory on boards of directors has been quite limited to this point. Most empirical work on boards has been aimed at answering one of three questions: 1) How are board characteristics such as composition or size related to profitability? 2) How do board characteristics affect the observable actions of the board? 3) What factors affect the makeup of boards and how they evolve over time? The primary findings from the empirical literature on boards are: Board composition is not related to corporate performance, while board size has a negative relation to corporate performance. Both board composition and size are correlated with the board's decisions regarding CEO replacement, acquisitions, poison pills, and executive compensation. Finally, boards appear to evolve over time as a function of the bargaining power of the CEO relative to the existing directors. Firm performance, CEO turnover, and changes in ownership structure appear to be important factors affecting changes to boards.

download in pdf format
   (118 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8161

Published: Hermalin, Benjamin E. and Michael S. Weisbach. "Boards Of Directors As An Endogenously Determined Institution: A Survey Of The Economic Literature," FRB New York - Economic Policy Review, 2003, v9(1,Apr), 7-26. citation courtesy of

Users who downloaded this paper also downloaded* these:
Bebchuk and Fried w9813 Executive Compensation as an Agency Problem
Adams, Hermalin, and Weisbach w14486 The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey
Holmstrom and Kaplan w8220 Corporate Governance and Merger Activity in the U.S.: Making Sense of the 1980s and 1990s
Bebchuk, Fried, and Walker w9068 Managerial Power and Rent Extraction in the Design of Executive Compensation
Bebchuk and Weisbach w15537 The State of Corporate Governance Research
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us