Bank Representatives on the Board of Directors and their Influence on the Firm's Investment Decision

Beschreibung

This paper examines the role of bank representatives on the firm’s board of directors and their influence on the firm’s big-scale lump-sum investment project. After the debt has been arranged, the bank representatives are inclined to lower the project risk, which is contrary to the shareholder’s interests of taking on more risk. However, higher risk increases the manager’s expected compensation. We use a one period discrete model to show that the bank representatives on the board can become beneficial from the shareholders’ perspective. This happens because the bank representatives on the board act as a commitment device for the board to implement less risk, which results in lower managerial expected compensation. The model predicts that shareholders benefit from bank representatives on the board of directors when they expect low project profitability.

Zeitraum	12 Juni 2019 → 14 Juni 2019
Ereignistitel	81. Jahrestagung des Verbands der Hochschullehrer für Betriebswirtschaft - VHB 2019
Veranstaltungstyp	Keine Angaben
Bekanntheitsgrad	International