Reforming Corporate Governance: Evidence from the Choice between Unitary Versus Dual Boards of Directors

Abstract

Contemporary governance reform proposals focus on strengthening board monitoring but recent theoretical models find that a passive board is often optimal. We examine board structure choice in France where for 45 years firms have been free to choose between a unitary board and a dual board structure. Our evidence indicates that dual boards are more monitoring intensive and that firms with greater asymmetric information adopt unitary boards, while those with a high potential for private benefit extraction adopt dual boards. Our results imply that freedom of contract about board structure is valuable for shareholders, and run counter to the thesis of convergence to the Anglo-American standard of unitary board structure.