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Diskussionspapiere - Hannover Economic Papers (HEP)

Board Incentives and Board Independence in Dynamic Agency

Autor: Svetlana Katolnik and Sandra K. Kukec and Jens Robert Schöndube
Nummer: 567, Dec 2015, pp. 27
JEL-Class: D81, G34, M41

Efficiency of the board structure is usually perceived as linked to a higher degree of monitoring. If monitoring improves performance measurement signals, on which a manager is compensated, it can be considered desirable from the manager's point of view. As a result, having a low degree of board independence (many insiders on the board) may incentivize the board to improve its monitoring technology. However, from a dynamic perspective board monitoring is not always desirable, since it can destroy the ex ante efficient trade-off between risk and incentives under the presence of renegotiation possibility. This provides predictions for an optimal board composition seen from a dynamic perspective.


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