Journal
EUROPEAN FINANCIAL MANAGEMENT
Volume 25, Issue 4, Pages 861-907Publisher
WILEY
DOI: 10.1111/eufm.12191
Keywords
advisory role; earnings quality; external governance; information environment; monitoring role; outside director; private firms; public firms
Categories
Funding
- Shanghai Pujiang Program
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We examine the board composition and the role of outside directors in US private firms. We find that compared with public firms, private firms have a higher proportion of outside directors on the boards and select their outside directors in a more responsive way to their advisory and monitoring needs. We also find that private firms' CEO turnover-performance sensitivity, earnings quality, going-public likelihood, and IPO value increase with the proportion of outside directors. These results are consistent with the view that lack of external governance in private firms leads to a greater demand for board monitoring for private firms.
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