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Abstract
Corporate governance scholars have employed agency theory extensively to examine the relationship between boards of directors and CEOs. In corporations, principals (owners) relinquish control to an agent (CEO) who is hired to run the firm. The responsibility of the board of directors is to ensure that the agent (the CEO) acts in the best interest of the principals (the shareholders). Agency problems arise in large part because information is distributed asymmetrically between agents and principals. Typically, agents possess much more information than principals do. It is therefore difficult for principals to ensure that agents are acting on their behalf. Thus, information asymmetry between the board of directors and the CEO is a primary impediment preventing boards from fulfilling their functions effectively. In spite of the central role of information asymmetry in agency theory, and calls from scholars to explore its role in agency relationships, relatively little research has focused on this issue. Using data from 145 firms, this dissertation fills this gap by examining the relationship between traditional measures of board effectiveness and boards information gathering behavior. In addition, this dissertation examines the relationship between boards information gathering behavior and the control mechanisms used to ensure the CEO acts in the best interests of stockholders. The findings of this study provide mixed support for agency theory predictions, as the majority of the hypotheses were not supported. Perhaps the most interesting finding is that even when boards possess information, they still employ traditional CEO control mechanisms. Thus, the findings of this study suggest that information is not a substitute for traditional governance mechanisms.