The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey

TLDR

This survey reviews post‑2003 literature on boards of directors, focusing on the intertwined questions of how board makeup and actions are determined, a relationship that complicates their study. The study examines how the literature addresses—or sometimes fails to address—the joint determination of board composition and actions. The authors evaluate both theoretical and empirical approaches to dealing with the joint endogeneity of board makeup and actions. JEL codes: G34, L25.

Abstract

This paper is a survey of the literature on boards of directors, with an emphasis on research done subsequent to the Benjamin E. Hermalin and Michael S. Weisbach (2003) survey. The two questions most asked about boards are what determines their makeup and what determines their actions? These questions are fundamentally intertwined, which complicates the study of boards because makeup and actions are jointly endogenous. A focus of this survey is how the literature, theoretical as well as empirical, deals—or on occasions fails to deal—with this complication. We suggest that many studies of boards can best be interpreted as joint statements about both the director-selection process and the effect of board composition on board actions and firm performance. (JEL G34, L25)