Subordinate board structures |
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| Authors: | David Reeb Arun Upadhyay |
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| Institution: | 1. Paul College of Business and Economics, University of New Hampshire, Durham, NH 03824, USA;2. Terry College of Business, University of Georgia, Athens, GA 30602, USA;3. School of Business, University of Kansas, Lawrence, KS 66045, USA;1. University of Nevada - Las Vegas, Department of Finance, Lee Business School, 520 Beam Hall, Las Vegas, NV 89154-6008, United States;2. Department of Finance, College of Business, Ohio University, 236 Copeland Hall, Athens, OH 45701, United States;3. University of Nevada - Las Vegas, Department of Finance, Lee Business School, 537 Beam Hall, Las Vegas, NV 89154-6008, United States;1. Faculty of Business and Management, Brno University of Technology, Brno, Czech Republic;2. Southampton Business School, University of Southampton, Southampton SO17 1BJ, UK;1. LEMMA University Panthéon-Assas, 4 rue Desgoffes, 75006 Paris, France;2. University Paris Nanterre - Economix, CIRANO, Ecole Polytechnique, Paris Nanterre School of Economics, 200 Avenue de la Republique, Nanterre, France;3. University Paris 7 Diderot, LADYSS, 5 rue Thomas Mann, 75205 Paris Cedex 13, France;4. AgroParisTech, Ecole Polytechnique, Department of Economics, Route de Saclay, 91128 Palaiseau, France;1. UNSW Business School, University of New South Wales, Sydney, NSW 2052, Australia;2. Monash Business School, Monash University, Melbourne, VIC 3800, Australia |
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| Abstract: | The board of directors is a flat governance structure where each director has an equal vote in determining the collective actions taken by the group. Yet, some boards choose to delegate authority for specific tasks to numerous committees, while others choose to create relatively few subcommittees of the board. We investigate the determinants of subordinate board structures, exploring both their benefits and costs. Using a sample of the S&P 1500 we find that subordinate board structures are positively related to board size and the proportion of outside directors, even after controlling firm characteristics such as complexity and ownership structure. Further tests indicate that these board structures can offset the negative associations that board size and the proportion of outsiders can have with firm performance. Yet, in firms with relatively small or insider oriented boards, where co-ordination problems among directors or social loafing may be less pronounced, we find that subordinate board structures are negatively related to firm performance. Categorizing committees as either monitoring or advisory, we find that both types of committees appear related to firm performance. Taken as whole, these results are consistent with the idea that subordinate board structures can be a costly remedy to alleviate problems that arise with larger, more outsider dominated boards. |
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