Corporate Cultures and Fabricated Boards: Should the Board Structure Be Regulated?

摘要

This paper empirically examines the roles of various governance mechanisms in different corporate cultures. The evidence shows that, in manipulative firms sued for financial scandals, more independent boards do not increase the likelihood of CEO replacement following the discovery of alleged scandals. However, higher levels of bank loans and highly concentrated outside blockholdings increase the likelihood and lead to more prompt CEO dismissal. In normal firms without financial scandals, board independence increases CEO turnover and the presence of blockholders and bank borrowing has no effect. These findings suggest that there is no need to regulate board structure; normal firms will rely on internal governance and outside investors only serve as providers of funds. However, in manipulative firms, board independence can be fabricated, thus the main source of discipline comes from outside investors. Imposing requirements on board independence may unintentionally reduce information available to outsiders because firms cannot self-select into different board structures that may attract sophisticated investors with different appetites for resolving agency problems.