Corporate Board Composition, Protocols, and Voting Behavior: Experimental Evidence

Authors

  • Ann B. Gillette,

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    • Gillette and Rebello are on the faculty of Georgia State University, and Noe is on the faculty of Tulane University. We would like to thank Rick Green (the editor), an anonymous referee, participants at the Atlanta Finance Workshop, the Caltech Bray Seminar, College of William and Mary, the Economic Science Association Meetings, the 2000 Financial Management Association Meetings, Kennesaw State University, the SIRIF Behavioral Finance Conference, U. Cattolica del Sacro Cuore, and the 2001 Western Finance Association Meetings. We also wish to thank Lucy Ackert, Christopher Anderson, and Chuck Schnitzlein for useful comments. Gillette acknowledges research support from the Robinson College of Business, Georgia State University and The Federal Reserve Bank of Atlanta. We are also grateful to Ping Hu, Bing-Xuan Lin, and Gwendolyn Pennywell for research help. Any errors are our own.
  • Thomas H. Noe,

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    • Gillette and Rebello are on the faculty of Georgia State University, and Noe is on the faculty of Tulane University. We would like to thank Rick Green (the editor), an anonymous referee, participants at the Atlanta Finance Workshop, the Caltech Bray Seminar, College of William and Mary, the Economic Science Association Meetings, the 2000 Financial Management Association Meetings, Kennesaw State University, the SIRIF Behavioral Finance Conference, U. Cattolica del Sacro Cuore, and the 2001 Western Finance Association Meetings. We also wish to thank Lucy Ackert, Christopher Anderson, and Chuck Schnitzlein for useful comments. Gillette acknowledges research support from the Robinson College of Business, Georgia State University and The Federal Reserve Bank of Atlanta. We are also grateful to Ping Hu, Bing-Xuan Lin, and Gwendolyn Pennywell for research help. Any errors are our own.
  • Michael J. Rebello

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    • Gillette and Rebello are on the faculty of Georgia State University, and Noe is on the faculty of Tulane University. We would like to thank Rick Green (the editor), an anonymous referee, participants at the Atlanta Finance Workshop, the Caltech Bray Seminar, College of William and Mary, the Economic Science Association Meetings, the 2000 Financial Management Association Meetings, Kennesaw State University, the SIRIF Behavioral Finance Conference, U. Cattolica del Sacro Cuore, and the 2001 Western Finance Association Meetings. We also wish to thank Lucy Ackert, Christopher Anderson, and Chuck Schnitzlein for useful comments. Gillette acknowledges research support from the Robinson College of Business, Georgia State University and The Federal Reserve Bank of Atlanta. We are also grateful to Ping Hu, Bing-Xuan Lin, and Gwendolyn Pennywell for research help. Any errors are our own.

Abstract

We examine voting by a board designed to mitigate conflicts of interest between privately informed insiders and owners. Our model demonstrates that, as argued by researchers and the business press, boards with a majority of trustworthy but uninformed “watchdogs” can implement institutionally preferred policies. Our laboratory experiments strongly support this conclusion. Our model also highlights the necessity of penalties on insiders when there is dissension among board members. However, penalties for dissent appeared to have little impact on the experimental outcomes.

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