A Multifaceted Influence of the Structure of the Board of Directors
The goal of this project is to improve the understanding of the role of the Board of directors and its interaction with the managers and the shareholders. The project focuses on the Board of directors as one element of corporate governance, which can be thought of as a market solution to an organizational design problem that helps in reducing the agency problem.
The project focuses on three aspects of the influence of the structure of the Board of directors: the board’s incentives to exert monitoring and advising effort, the compensation contract of the manager and how the optimal compensation contract changes with a changing board structure, and the effect of the board’s independence on the productive, as well as, on the manipulative effort of the manager.
Additionally, the three mentioned aspects will not only be examined in the static, but also in the dynamic setting. The project will, therefore, look at the influence and effects of insiders on the board in a dynamic setting, where the contract lasts for several periods. In such dynamic settings, renegotiation is viable and will affect the results significantly. For example, contrary to a static setting, under the renegotiation setting less monitoring can be preferred, due to the fact that monitoring can also inflate the second period incentive rates.
This project will focus on the analytical research methodology, applying the game theoretic approach, namely principal agent models in the context of corporate governance.