Busy Boards, Delegated Decision‐Making, and Misreporting
Year: 2025
Type: article
Abstract: ABSTRACT We study how shareholders choose board directors with respect to outside directorships. In our setting, a CEO works on a project, and the board has formal authority over an interim decision. A relatively “busy” board—a board composed of directors who also serve on some other boards—is likely to delegate the interim decision to the CEO, while a more “available” board is likely to retain its formal authority. By reducing the likelihood of delegation, greater board availability decreases the pressure on costly bonus payments designed to discipline the CEO. However, precisely because the CEO is unlikely to control the interim decision, she misreports performance to distort the board's decision‐making according to her preferences. Shareholders trade off these opposing effects in choosing the board's busyness. Our results offer a new explanation for why shareholders rarely elect “dedicated” directors and highlight a potential downside of guidelines aimed at limiting directors' total directorships. We also provide an alternate rationale for the finding that younger firms choose busier boards. Finally, our model predicts that boards should be relatively busier in emerging markets.
DOI: 10.1111/jbfa.12861
Authors: Abhishek Ramchandani, Alexandra Lilge
Institutions: University of Hawaiʻi at Mānoa, Leibniz University Hannover
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4408344648