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| Author: | Drymiotes, G. |
| Title: | The monitoring role of insiders |
| Journal: | Journal of Accounting & Economics
2007 : DEC, VOL. 44:3 p. 359-377 |
| Index terms: | corporate governance board of directors control commitment directors |
| Language: | eng |
| Abstract: | This study shows, with the help of a model in which insiders become part of the governance mechanism, that less independent boards can sometimes be more effective at monitoring than agents with an oversight role in the monitoring process. This happens because fully independent boards have incentives to shirk monitoring ex post, after the agents' productive inputs are sunk, if the boards cannot commit ex ante to monitoring. Boards with inside directors, in the other hand, may have an incentive to monitor the agents ex post. Thus, the demand for insiders arises endogenously as they allow boards to indirectly commit to monitoring and facilitate the monitoring process. |
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