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Corporate Governance in a Competitive Environment
Richard C Sansing, Dartmouth College
Phillip C Stocken, Dartmouth College
ABSTRACT. We examine a firm's corporate governance choices within a competitive environment. A firm can choose a delegating board that assigns decision rights to the executive manager or an investigating board that retains these rights. A firm also chooses the strength of its internal control system. We characterize the equilibrium governance choices and find that the presence of a competitor increases the likelihood that a firm chooses a delegating board. We discuss how the governance choice is affected by the rate of technological innovation, board expertise, the discount rate, the benefit of using new technology, and the cost of operating an internal control system. Finally, we analyze consequences of the Sarbanes-Oxley Act.
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