Board Monitoring and Advising in Dynamic Agency. Issue 4 (8th August 2022)

• Record Type: Journal Article
• Authors: Katolnik, Svetlana; Kronenberger, Sandra K.; Schöndube, Jens Robert
• Is Part Of: European accounting review. Volume 31:Issue 4(2022)
• Page Start: 973
• Page End: 1002
• Publication Date: 2022-08-08
• Subjects: Corporate governance -- Board monitoring -- Board advising -- Board composition -- Managerial incentives; D81 -- G34 -- M41; Accounting -- Europe -- Periodicals; Accounting -- Periodicals; Comptabilité -- Europe -- Périodiques; Comptabilité -- Pays de l'Union européenne -- Périodiques; 657.094
• DOI: 10.1080/09638180.2021.1890630
• Languages: English
• ISSNs: 0963-8180

Abstract

Abstract : Intuition suggests that shareholders benefit from active boards. We present a model to show that if contract renegotiation is possible, then an active board might not always be desirable from the shareholders' perspective. This happens because low board activity may partially offset the distortion in the manager's incentives caused by the renegotiation option. While the value of low board activity stems from the board's weak monitoring, a strong measurement effect of the board's advising in the manager's performance measures is necessary to implement it. In this case, a sufficiently independent board motivates a low level of board activity.