Investigating the Relationship Between Board Characteristics and Board Information

Abstract

While corporate governance research has had some success tying boards' demographic characteristics to relatively distant outcomes such as CEO pay and succession, numerous studies have indicated that a major weakness of this research is that it has largely ignored the intervening behaviours associated with board vigilance. This study begins to answer this call by examining the relationship between boards' demographic characteristics and boards' information-gathering behaviour. Using primary and secondary data from 149 firms, this study finds that an increase in the proportion of outside directors on a board is associated with an increase in boards' information quality and proactive information-seeking. In addition, an increase in outside director tenure is associated with boards exchanging information more frequently. Consistent with agency theory predictions, these findings suggest that vigilant boards are likely to take actions aimed at reducing the level of information asymmetry between them and their CEOs. Copyright (c) 2007 The Authors; Journal compilation (c) 2007 Blackwell Publishing Ltd.

Does the Team Leverage the Board's Decisions?

“…Another factor that is likely to indicate differences in the inclination for strategic change in a firm is board tenure. The majority of studies have analysed the effects of tenure in the TMT (Finkelstein & Hambrick, 1996; Kalyta, 2009; Katz, 1982; Boeker, 1997; Wiersema & Bantel, 1992), but many of the arguments used would be equally applicable to boards (Rutherford & Buchholtz, 2007). On the one hand, long organizational tenure is thought to be associated with rigidity and commitment to established policies and practices (Katz, 1982) and may also restrict information processing through the establishment of routines and repertoires for dealing with problems and issues (Miller & Friesen, 1984).…”

Board information and board strategic involvement

“…(2) Diversity of information Board information diversity reflects the scope of the information pool of a board [13] . It is directly linked to the directors' expertise, experience, educational level, age and functional background.…”

“…Not only does it affects the top management team's performance (Kim, Burns, & Prescott, 2009), but also the firm's performance (Charan, 1998(Charan, , 2005 [13][14][15]2011 Rome, Italy purpose of achieving long-term results and survival. That is to say, the board's strategic involvement is a source of competitiveness [6] .…”

Improving corporate performance by enhancing team dynamics at the board level

“…The minimization of these information acquisition costs in the boardroom may result in higher levels of decision making, task performance and ultimately profitability. Therefore, dynamics is a measure of the directors' ability to communicate information to one another, reducing the economically detrimental impact of information asymmetry -as observed, 'information asymmetry is likely to play an important role in determining whether boards will be effective in carrying out their duties' (Rutherford, 2007). We again update F&M's model by adding an aspect that has not yet been measured at the director level -CQ.…”