Arbeitspapier

Voting in corporate boards with heterogeneous preferences

We analyze the voting behavior of a board of directors that has to approve (or reject) an investment proposal with uncertain return. We consider three types of directors: insiders, who are biased toward acceptance of the project, independent outsiders who want to maximize the firm's profit and independent outsiders who care about their reputation. We show that the presence of members with heterogeneous preferences can be beneficial and that the partisan behavior of insiders can be used as a sort of coordinating device by uninformed outsiders. Provided that the size of the board is optimal, there is no gain from increasing the number of outsiders above the strict majority despite the fact that each outsider is informed with positive probability. Substituting profit-maximizing directors with directors concerned about their reputation is not an obstacle to profit maximization provided that an appropriate sequential voting protocol is followed. We also show that a proper board composition makes communication between directors irrelevant in the sense that the same outcome is obtained with and without communication. Finally, as information is costly, our model provides some suggestions on the optimal size of boards.

Sprache
Englisch

Erschienen in
Series: CESifo Working Paper ; No. 3332

Klassifikation
Wirtschaft
Corporate Finance and Governance: General
Social Choice; Clubs; Committees; Associations
Thema
board of directors
voting
corporate governance
Aufsichtsrat
Gruppenentscheidung
Wahlverhalten
Corporate Governance
Theorie

Ereignis
Geistige Schöpfung
(wer)
Balduzzi, Paolo
Graziano, Clara
Luporini, Annalisa
Ereignis
Veröffentlichung
(wer)
Center for Economic Studies and ifo Institute (CESifo)
(wo)
Munich
(wann)
2011

Handle
Letzte Aktualisierung
10.03.2025, 11:44 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Balduzzi, Paolo
  • Graziano, Clara
  • Luporini, Annalisa
  • Center for Economic Studies and ifo Institute (CESifo)

Entstanden

  • 2011

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