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Regulation and the Evolution of Corporate Boards: Monitoring, Advising, or Window Dressing?

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  • Helland, Eric
  • Sykuta, Michael
Abstract
It is generally agreed that boards are endogenously determined institutions that serve both oversight and advisory roles in a firm. While the oversight role of boards has been extensively studied, relatively few studies have examined the advisory role of corporate boards. We examine the participation of political directors on the boards of natural gas companies between 1930 and 1998. We focus on the expansion of federal regulation of the natural gas industry in 1938 and 1954 and subsequent partial deregulation in 1986. Using data sets covering the periods from 1930 to 1990 and 1978 to 1998, we test whether regulation and deregulation altered the composition of companies' boards as the firms' environment changed. In particular, did regulation cause an increase and deregulation a decrease in the number of political directors on corporate boards? We find evidence that the number of political directors increases as firms shift from market to political competition. Specifically, the regulation of natural gas is associated with an increase in the number of political directors and deregulation is associated with a decrease in the number of political directors on boards.

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  • Helland, Eric & Sykuta, Michael, 2004. "Regulation and the Evolution of Corporate Boards: Monitoring, Advising, or Window Dressing?," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 167-193, April.
    • Handle: RePEc:ucp:jlawec:y:2004:v:47:i:1:p:167-93
    DOI: 10.1086/380473
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    References listed on IDEAS

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    7. Avdasheva, S., 2013. "Impact of Regulatory Constraints on Corporate Governance in the Contemporary Russian SOE," Journal of the New Economic Association, New Economic Association, vol. 20(4), pages 159-164.
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    13. Santiago Kopoboru & Gloria Cuevas-Rodríguez & Leticia Pérez-Calero, 2020. "Boards that Make a Difference in Firm’s Acquisitions: The Role of Interlocks and Former Politicians in Spain," Sustainability, MDPI, vol. 12(3), pages 1-19, January.
    14. SAKO Mari & KUBO Katsuyuki, 2019. "Professionals on Corporate Boards: How do they affect the bottom line?," Discussion papers 19010, Research Institute of Economy, Trade and Industry (RIETI).
    15. Tosun, Onur Kemel & El Kalak, Izidin & Hudson, Robert, 2022. "How female directors help firms to attain optimal cash holdings," International Review of Financial Analysis, Elsevier, vol. 80(C).
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    17. Volonté, Christophe, 2015. "Boards: Independent and committed directors?," International Review of Law and Economics, Elsevier, vol. 41(C), pages 25-37.
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    20. Michael E. Sykuta, 2010. "Empirical Methods in Transaction Cost Economics," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 16, Edward Elgar Publishing.
    21. Li, Mingshan & Sun, Xiaohua & Wang, Yun & Song-Turner, Helen, 2019. "The impact of political connections on the efficiency of China's renewable energy firms," Energy Economics, Elsevier, vol. 83(C), pages 467-474.
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