BOARD OF DIRECTOR INVOLVEMENT IN RESTRUCTURING - THE EFFECTS OF BOARDVERSUS MANAGERIAL CONTROLS AND CHARACTERISTICS

Board of director involvement in restructuring reveals whether restruc turing is brought on as an action by the board in its central oversigh t role or whether managers are purusing positive strategic action or c orrection. Therefore, based on an integration of organization economic s (agency theory and market for corporate control) and strategic manag ement theory (internal control and strategic leadership contingencies) , this research examines board involvement in restructuring. Board inv olvement is hypothesized to be contingent on the governance mechanisms used by the board to monitor top management, control emphasis used by managers to process strategic information and board and managerial ch aracteristics. The basic premise of the paper is that, due to their ov ersight role, board members (especially outside directors) become invo lved in restructuring only when managerial strategy implementation app ears to be deficient. Top management team equity stakes are found to b e negatively related to board involvement in restructuring, while outs ide director ownership is found to be positively related. Emphasis on strategic controls by managers was found to be negatively related to b oard involvement in restructuring. Top management team tenure and top management organizational tenure are negatively related to board invol vement. Outsider representation on the board is positively related to board involvement in restructuring, while board tenure was found to be unrelated. Results imply that incentives to monitor (ownership) and e mphasis on strategic controls reinforced by higher top mangement team tenure result in less board involvement in restructuring. However, res tructuring may be initiated by outsiders on the board when other gover nance and control mechanisms fail. This implies a substitution process between governance tactics (ownership vs. board monitoring) and inter nal controls (managerial vigilance).