Essays on the Impact of Board Composition on Financial Reporting Quality, Corporate Social Responsibility, and Tournament Incentives

Research output: ThesisDoctoral ThesisCollection of Articles


In recent years, there has been substantial scholarly debate regarding the roles of corporate boards. A widely accepted perspective posits that boards primarily function as vigilant overseers of executives, ensuring that management’s actions align with the interests of shareholders. This monitoring role is crucial because of the separation of ownership and control in modern corporations, which can lead to agency problems and associated costs. To mitigate these issues, boards employ various mechanisms to oversee executives, reducing the risk of opportunistic behavior and aligning the interests of management with those of shareholders. Directors are expected to act as diligent representatives of shareholders, fulfilling their fiduciary duties. In essence, corporate governance research underscores the core role of the board as a monitor and advocate for shareholders’ interests.
The first essay in this dissertation contributes to the literature by demonstrating that the internationalization of the audit committee weakens the board’s monitoring effectiveness. Specifically, the essay shows that a higher proportion of foreign directors on the audit committee is linked to lower-quality financial reporting, particularly in the presence of language barriers. However, stronger investor protection and the financial expertise of these foreign directors can mitigate this negative impact. Firms with foreign directors on the audit committee also tend to have less informative stock prices related to their future earnings. Additionally, a more significant proportion of foreign directors on the audit committee results in higher audit fees and longer audit delays, likely due to the lower-quality reporting associated with foreign directors, heightening audit risk and necessitating increased effort and fees from auditors.
The second essay demonstrates that board co-option also undermines the board’s monitoring function. Specifically, it reveals that a higher proportion of co-opted directors negatively affects firms’ CSR activities and environmental performance, particularly in areas like carbon emissions, toxic emissions, waste management, energy efficiency, and carbon footprint. This impact is more pronounced for firms with substantial short-term managerial compensation incentives and those operating in industries highly reliant on external funding or characterized by informational asymmetries. Additionally, the essay shows that board co-option negatively affects diversity-related social initiatives and workforce diversity.
Using the pay gap between the CEO and the median-paid Vice President as the measure of tournament incentives, the third essay highlights a positive relationship between directors’ incentives to protect their reputations and the use of executive pay tournaments. This positive association holds for gaps in both long-term and short-term executive compensation. The findings suggest that directors with a solid incentive to safeguard their reputation use tournaments to foster competition among Vice Presidents for the CEO position. Consequently, this spurs Vice Presidents to work diligently and explore potentially riskier investment strategies, ultimately resulting in improved firm performance and the preservation of directors’ reputations. In summary, all three essays in this dissertation provide new insight into the monitoring role of directors and thus contribute to the corporate governance literature.
Original languageEnglish
QualificationDoctor of Philosophy
  • Ittonen, Kim, Degree supervisor
  • Martikainen, Minna, Thesis supervisor, External person
Award date24.11.2023
Place of PublicationHelsinki
Print ISBNs978-952-232-506-8
Electronic ISBNs978-952-232-507-5
Publication statusPublished - 2023
MoE publication typeG5 Doctoral dissertation (article)


  • 512 Business and Management
  • Board Composition
  • Financial Reporting Quality
  • Audit Committee
  • Foreign Directors
  • Corporate Social Responsibility
  • Board Co-option
  • Non-Co-opted Directors
  • Director Reputation Incentives
  • Executive Pay Tournaments


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