臺大管理論叢 NTU Management Review VOL.28 NO.3

151 NTU Management Review Vol. 28 No. 3 Dec. 2018 confidence or even hubris to become reckless in regard to the probable consequences of questionable conduct. As Gellerman (1986) suggests, these “good” top executives may rely on their experience and rationalization to justify illegal or unethical behavior. Viewed from the CEO’s perspective, how they conceptualize and value certain corporate conduct may be associated with their age. Thus, it is reasonable to hypothesize that the likelihood of corporate misconduct increases as the CEO career horizon becomes shorter, but decreases as CEOs are close to the end of their executive careers. H1. There is an inverted U-shaped effect of CEO career horizon on the likelihood of corporate misconduct: it is positive as CEOs’ career horizon decreases initially, but becomes negative as their career horizon further decreases. 2.2 The Moderating Effects of Corporate Governance Given the likelihood of firms engaging in corporate misconduct may be determined by the career horizon of CEOs, the mechanisms by which executives’ decision making is monitored are expected to mitigate the agency conflict problems. As agency theorists suggest, the primary function of boards is to safeguard shareholders’ interests from management misappropriation (Shleifer and Vishny, 1997). In the recent decade, the responsibilities of boards have been extended to cover the interests of more stakeholders (Muthusamy, Bobinski, and Jawahar, 2011), i.e., some characteristics of board composition are associated with constraining the propensity of CEOs in engaging in improper conduct (Chen, 2013; McDonald and Westphal, 2010; Williams et al., 2005). Taking the complexity and changing nature of corporate misconduct into consideration, boards of directors need more substantial, professional and careful supervision to monitor the top management team. The board competence is also a result of the composition of a company’s board. As such, in the following subsections, we will separately discuss whether board size, board diversity and their interplays with CEO career horizon alleviate or worsen the incidence of corporate misconduct. 2.2.1 Board Size The debate on whether large board size is beneficial or detrimental to corporate governance of a firm is still inconclusive. Some studies posit that larger boards are more inefficient in nature than smaller ones because more directors lead to free-riding problems and conflicts in coordination and communication processes and thus result in poorer monitoring effect (Cheung, Stouraitis, and Wong, 2005; Eisenberg, Sundgren, and Wells, 1998).