WHEN INSIDERS ARE PREFERRED TO OUTSIDERS: THE IMPACT OF PERFORMANCE AND OWNERSHIP ON BOARD QUALITY

Agency costs are examined in a framework that provides insight into investor perceptions of the interrelations between the various, sometimes conflicting indicators of agency costs. The relation between the stock price reaction to antitakeover charter amendments (ATA) and various combinations of age...

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Bibliographic Details
Published in:Corporate finance review 2011-07, Vol.16 (1), p.5
Main Authors: Borokhovich, Kenneth A, Brunarski, Kelly R, Harman, Yvette S
Format: Article
Language:English
Subjects:
Anti takeover strategy
Boards of directors
Commercial banks
Corporate governance
Executives
Impact analysis
Investment banking
Perceptions
Preferred stock
Proxy statements
Shareholder voting
Stock exchanges
Stock prices
Stockholders
Studies
Voting rights
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Summary:Agency costs are examined in a framework that provides insight into investor perceptions of the interrelations between the various, sometimes conflicting indicators of agency costs. The relation between the stock price reaction to antitakeover charter amendments (ATA) and various combinations of agency cost indicators for ATA-adopting firms are examined. Overall, the evidence suggests that investors do not consider measures of performance, growth, board independence, board ownership, and outside blockholdings separately when assessing the degree of agency costs within a firm. Rather, they are viewed as interrelated. If permitted within the scope of the law, allowing more inside managers on the board can benefit shareholders of firms where managers have proven their worth. Alternatively, well-performing firms could allow managers to have more decision-making autonomy or greater input into board decisions, even if these managers are not board members themselves. The presence of outside blockholders in a firm is an important factor in corporate governance. If greater inside ownership is considered to be a negative factor for stockholders because it can lead to entrenchment, one way to address the problem is to amend the corporate bylaws to remove voting rights from the shares held by insiders.
ISSN:1089-327X