Expertise, Structure, and Reputation of Corporate Boards

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Finance Papers
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board of directors
communication
information acquisition
expertise
reputation
transparency
Finance and Financial Management
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Levit, Doron
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This paper studies the optimal structure of the board with an emphasis on the expertise of directors. The analysis provides three main results. First, the expertise of a value-maximizing board can harm shareholder value. Second, it is optimal to design a board whose members are biased against the manager, especially when their expertise is high. Third, directors' desire to demonstrate expertise can shift power from the board to the manager on the expense of shareholders. The effect of these reputation concerns is amplified when the communication within the boardroom is transparent.

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2012-07-01
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