How Do Independent Directors Affect Corporate Risk-Taking?

Excessive risk-taking by corporate executives is often blamed for triggering the financial crisis of 2008. Therefore, it is crucial to understand the nature of corporate risk-taking so as to prevent, or reduce the likelihood of, a future crisis. In theory, managers, who represent shareholders, are expected to act in the best interest of the shareholders and only take risks that maximize shareholder wealth. In reality, managers may take either too little risk or too much.

First, managers may adopt corporate policies and strategies that are too conservative, because their human capital is invested in the company. A high degree of … Read more

How Do Independent Directors View Powerful CEOs? Evidence From a Quasi-Natural Experiment

There has been a recent surge in scholarship on the issue of concentration of power in the CEO, and the subsequent consequences for shareholder wealth maximization and board primacy. There is a general consensus among scholars that, in general, more powerful CEOs (relative to the board as representative of the corporate shareholders) can exacerbate agency conflict, resulting in suboptimal corporate strategies that are detrimental to corporate performance, and as a result, damaging to shareholder interests as well. The basic cause of this excessive power with CEOs lies in the outside board members being dependent on the CEO for their selection, … Read more