Boards of directors, ownership, and regulation

In this paper we examine whether regulation can be used to substitute for internal monitoring mechanisms (percentage of outside directors, officer and director common stock ownership, and CEO/Chair duality) to control for agency conflicts in a firm. We find that, in general, the percentage of outside directors is negatively related to insider stock ownership, but is not affected by CEO/Chair duality. CEO/Chair duality is, however, less likely when insider stock ownership increases. We find these internal monitoring mechanisms to be significantly less related with regulated firms (banks and utilities). We conclude that to the extent that regulations reduce the impact of managerial decisions on shareholder wealth, effective internal monitoring of managers becomes less important in controlling agency conflicts. (C) 2002 Elsevier Science B.V. All rights reserved.