The Costs of Intense Board Monitoring — The Harvard Law School Forum on Corporate Governance and Financial Regulation

Wow...

The Costs of Intense Board Monitoring — The Harvard Law School Forum on Corporate Governance and Financial Regulation:

"Editor’s Note: The following post comes to us from Olubunmi Faleye of the Finance Department at Northeastern University, Rani Hoitash of the Department of Accountancy at Bentley University, and Udi Hoitash of the Accounting Department at Northeastern University.

In our paper The Costs of Intense Board Monitoring, forthcoming in the Journal of Financial Economics,First, we examine whether the quality of board monitoring is enhanced when the board is more focused on monitoring. Second, we examine whether intense monitoring is associated with weaker advising. Third, we examine how this potential tradeoff between the quality of board monitoring and advising affects overall firm value, emphasizing the role of the firm’s advising requirements in the process.

Takeaway: More active monitoring is a two edged sword. Yes it increases CEO turnover and reduces executive pay, BUT it also reduces the quality of advising and overall (as measured by Tobin's Q) seems to be detrimental to the firm.

Definitely an I^3 paper!