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The efficiency view of corporate boards: theory and evidence

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We build a model in which corporate governance allows for the adoption of an institution acting as a mechanism to control agency problems. Our model predicts that the incentive to adopt such an institution is decreasing in ownership concentration and increasing in free cash flow. Testing our theoretical model by means of a sample of 157 Italian listed companies over the period 2004–2007, we find that board composition favours independent members in firms with a large free cash flow, and executive members in firms with high ownership concentration, supporting the view of governance as a way to limit agency costs.

Keywords: G32; G34; corporate boards; firm performance; private benefits

Document Type: Research Article


Affiliations: Istituto di Economia e Finanza,Università Cattolica, Largo Gemelli 120123 Milano, Italy

Publication date: 2013-02-01

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