Articles week 3 Flashcards
(10 cards)
What is the main function of boards according to Hermalin & Weisbach? (2003)
To mitigate agency problems between managers and shareholders.
What does it mean that boards are ‘endogenously determined’?
Their structure and function result from internal firm dynamics, not just regulation.
How does CEO performance affect board independence?
Strong performance allows CEOs to bargain for less independent boards.
What’s the effect of board size on performance?
Larger boards are typically associated with lower firm performance.
What is one empirical finding about outside directors and effect of them on CEOs?
Firms with more outside directors are more likely to fire underperforming CEOs.
What is the core question of corporate governance? (Schleifer & Vishny, 1997/2012)
How financiers ensure they get a return on their investment from managers.
What are two key governance mechanisms emphasized by Shleifer & Vishny (1997/2012)?
Legal protection of investors;
Concentrated ownership
Why are incentive contracts not always effective?
They can be gamed by managers or are politically constrained.
What role does ownership concentration of investors (large vs diffused shareholders) play in governance?
Large investors can monitor and discipline management more effectively than diffused shareholders.
What is one major cost of concentrated ownership?
Potential for large investors to deprive minority shareholders.
