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- Title
Are Interlocked Directors Effective Monitors?
- Authors
Devos, Erik; Prevost, Andrew; Puthenpurackal, John
- Abstract
This paper examines whether the presence of interlocked directors on a board is associated with weak governance. For a sample of 3,566 firm-years spanning 2001 to 2003, we find that firms with lower industry-adjusted firm performance are more likely to have interlocked directors. We document that shareholders react negatively to the formation of director interlocks and find that the presence of interlocked directors is associated with lower than optimal pay-performance sensitivity of CEO incentive compensation and reduced sensitivity of CEO turnover to firm performance. Collectively, our results suggest that the presence of interlocked directors is indicative of weak governance.
- Subjects
INTERLOCKING directorates; CORPORATE directors; CORPORATE governance; BUSINESS enterprises; PERFORMANCE standards; WAGE payment systems; STOCKHOLDERS; LABOR incentives; EXECUTIVE compensation
- Publication
Financial Management (Wiley-Blackwell), 2009, Vol 38, Issue 4, p861
- ISSN
0046-3892
- Publication type
Article
- DOI
10.1111/j.1755-053X.2009.01059.x