Abstract
A sample of 6169 firm year observations in 14 western European countries between 2002 and 2009 is used to investigate how committee practice within boards of directors is related to company characteristics, and to the existence of alternative corporate governance instruments in place. We find that committees in Europe are prevalent in larger companies, and in companies with large and independent boards. However, we also find that leverage, director interlocking, concentrated ownership, and the presence of managers on the board mitigate the use of committees, suggesting that committee use is limited by the existence of alternative governance mechanisms. Consequently, recent regulatory changes in Europe that promote the creation of committees within boards may be unsuited for certain types of company, especially smaller companies and those with concentrated ownership.
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Notes
Recommendation on the role of (independent) non-executive or supervisory directors, European Commission Internal Market Directorate/General. Commission Recommendation 2005/162/EC of 15th February, 2005.
European Commission Recommendation 2005/162/EC of 15th February 2005 on the role of (independent) non-executive or supervisory directors, page 9.
Casual evidence indicates that companies—except in the case of restructurings—change their governance structure very slowly. We expect yearly changes to be small.
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Acknowledgements
The authors benefited from the valuable comments of T. Berglund, R. Crespi, V. Cuñat, B. García-Osma, C. Fernandez, S. Shankar, A. Glazer (the editor) and a referee, as well as participants at the XXIII Finance Forum (Madrid), the 2015 Eastern Finance Association Meeting (New Orleans), 4th International Finance and Banking Society Conference (Valencia), and participants in seminars in University of Burgos, Hanken School of Economics and Ramón Areces Foundation. Financial support from the Spanish Ministry of Economy and Competitiveness (Grant ECO2012-32554) is gratefully acknowledged. Any errors are the sole responsibility of the authors.
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Andrés, P.d., Arranz-Aperte, L. & Rodríguez-Sanz, J.A. Delegation of board work to committees in Europe. Econ Gov 18, 179–208 (2017). https://doi.org/10.1007/s10101-017-0191-y
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DOI: https://doi.org/10.1007/s10101-017-0191-y