The Interrelationship Between Managerial Ownership And Board Structure

The paper tests the hypothesis that high managerial ownership entrenches managers by allowing the CEO to create a board that is unlikely to monitor. The results show a strong negative relationship between the level of managerial ownership and corporate governance factors, such as, the split of the roles of the CEO and the Chairman, the proportion of nonexecutive directors, and the appointment of a non-executive director as a Chairman. The author also fined that companies with low managerial ownership are more likely to change their board structure to comply with the Cadbury (1992) recommendations. The results suggest that managers, through their high ownership, choose a board that is unlikely to monitor.