We examine voting by a board designed to mitigate conflicts of interest between privately informed insiders and owners. Our model demonstrates that, as argued by researchers and the business press, boards with a majority of trustworthy but uninformed "watchdogs" can implement institutionally preferred policies. Our laboratory experiments strongly support this conclusion. Our model also highlights the necessity of penalties on insiders when there is dissension among board members. However, penalties for dissent appeared to have little impact on the experimental outcomes. CONSIDER THE SITUATION OF OWNERS of a corporation when they entrust the fate of their institution to groups of insiders. Because the owner-preferred allocation may be contingent on private information possessed by the insiders, owners need a mechanism to mitigate conflicts of interest with insiders. In practice, owners entrust the governance of corporations and other institutions to boards and committees consisting of a mix of insiders and outsiders. Corporate boards are increasingly being dominated by independent outside directors (see, e.g., Spencer Stuart (1997)), a trend mirroring the recommendations of the National Association of Corporate Directors and The Business Roundtable.1The advocacy of independent outsider-dominated boards is surprising as research has produced weak or mixed results on the effectiveness of outsiders on boards. For example, Weisbach (1988) finds that, when there is a majority of outside directors, CEO turnover is greater. However, the likelihood of CEO replace-* Gillette and Rebello are on the faculty of Georgia State University, and Noe is on the faculty of Tulane University. We would like to thank Rick Green The Journal of Finance ment is only slightly higher for these firms. Mikkelson and Partch (1997) also find little evidence of a relationship between CEO tenure and board composition. In a corporate control context, Byrd and Hickman (1992) document a more favorable response to acquirers with majority-outsider boards, while Subrahmanyam, Rangan, and Rosenstein (1997) find the opposite tendency for bank acquisitions. Studies of the direct relationship between board composition and firm performance have also produced mixed results. For example, while Baysinger and Butler (1985) document a positive relation between outsider membership on boards and return on equity relative to industry, Yermack (1996) reports a negative relation between the proportion of outside directors and Tobin's q. Further, a number of other studies find no significant relation between the mix of directors and same-year firm performance (see, e.g., Hermalin and Weisbach (1991) and Mehran (1995)).A lack of clear evidence for the effectiveness of outside directors has fueled the continuing debate on the effectiveness of outsider-majority boards. This lack of support for the effectiveness of outsider-majority boards could be the result of impediments to empirical research pointed out by a number of authors, including Hermalin and Weisbach (1991), Bh...

This study provides insights into the forces and constraints that shape analyst research coverage along country and sector dimensions and the impact of the structure of an analyst's portfolio on forecast accuracy. We find that analyst specialization by country and sector is sensitive to the extent to which firms within a country or sector and firms across country-sectors are exposed to common economic forces, the potential for revenue generation, and broker culture. Our tests indicate that existing research on the relation between analyst portfolio structure and forecast accuracy may suffer from an endogeneity bias. We use our analysis of analyst specialization to develop controls for this bias. Once we employ these controls, we find that country diversification is * Georgia State University; †Emory University; ‡University of Texas at Dallas; §Northeastern University. We thank an anonymous referee for several valuable insights and the Editor, Merle Erickson, for many useful suggestions. We also thank

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We model and experimentally examine the board structure-performance relationship. We examine single-tiered boards, two-tiered boards, insider-controlled boards, and outsider-controlled boards. We find that even insider-controlled boards frequently adopt institutionally preferred rather than self-interested policies. Two-tiered boards adopt institutionally preferred policies more frequently, but tend to destroy value by being too conservative, frequently rejecting good projects. Outsidercontrolled single-tiered boards, both when they have multiple insiders and only a single insider, adopt institutionally preferred policies most frequently. In those board designs where the efficient Nash equilibrium produces strictly higher payoffs to all agents than the coalition-proof equilibria, agents tend to select the efficient Nash equilibria.

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In this paper we examine the insurance decision of a firm with private information regarding its cash flows and insurable losses. We show that, even in the absence of bankruptcy costs and information production by insurers, the firm's attempts to hedge its information risk can induce it to demand insurance. If higher operating revenues are accompanied by a lower insurance risk, the firm will choose to self-insure. In contrast, if higher operating revenues are accompanied by a higher insurance risk, the firm will demand insurance. In fact, if its insurable losses are relatively small, the firm will fully insure its losses. Further, if there exists considerable uncertainty regarding the firm's insurance risk, the level of coverage demanded by the firm is dependent on its private information, with higher levels of coverage signaling favorable information regarding the firm's future operations. The Geneva Papers on Risk and Insurance Theory (1993) 18, 147–171. doi:10.1007/BF01111467

We model and experimentally examine the board structure-performance relationship. We examine single-tiered boards, two-tiered boards, insider-controlled boards, and outsider-controlled boards. We find that even insider-controlled boards frequently adopt institutionally preferred rather than self-interested policies. Two-tiered boards adopt institutionally preferred policies more frequently, but tend to destroy value by being too conservative, frequently rejecting good projects. Outsidercontrolled single-tiered boards, both when they have multiple insiders and only a single insider, adopt institutionally preferred policies most frequently. In those board designs where the efficient Nash equilibrium produces strictly higher payoffs to all agents than the coalition-proof equilibria, agents tend to select the efficient Nash equilibria.