Are All Inside Directors The Same? CEO Entrenchment Or Board Enhancement

Two opposing theories currently exist concerning the role of inside directors on corporate boards. One theory emphasizes the moral hazard problem associated with CEO influence over officer-directors while the other theory emphasizes the valuable information-sharing role of inside directors. Both views treat inside directors as either homogenously beneficial or detrimental and ignore their potentially significant differences. Distinguishing inside directors by the external labor market for directorships, the authors find inside directors with outside directorships, referred to as independent insiders, and are more likely when firm specific information is highly important and less likely when a CEO is more influential.