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  • January 2015
  • Article
  • Strategic Management Journal

Are Incentives Without Expertise Sufficient? Evidence from Fortune 500 Firms

By: Emilie R. Feldman and Cynthia A. Montgomery
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Abstract

Agency theory predicts that incentives will align agents' interests with those of principals. However, the resource-based view suggests that to be effective, the incentive to deliver must be paired with the ability to deliver. Using Fortune 500 boards as an empirical context, this study shows that the presence of directors who lack top-level experience but own large shareholdings is negatively associated with firm value, an effect that increases in the number of such directors. Firm value rises after such directors depart from boards, with the greatest increases occurring when many of these directors leave. While agency theory highlights the importance of the right incentives being in place, this research suggests that this can be ineffective if the right resources are not in place.

Keywords

Board Of Directors; Corporate Governance; Incentives; Expertise; Motivation and Incentives; Governing and Advisory Boards; Experience and Expertise; Agency Theory

Citation

Feldman, Emilie R., and Cynthia A. Montgomery. "Are Incentives Without Expertise Sufficient? Evidence from Fortune 500 Firms." Strategic Management Journal 36, no. 1 (January 2015): 113–122.
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About The Author

Cynthia A. Montgomery

Strategy
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  • Assets, Capabilities, and Other Resources By: Cynthia A. Montgomery and Maria Roche
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