Board Independence and CEO Turnover
Abstract
ABSTRACT This paper analyzes how board independence affects the CEO's ability to extract rents from the firm. The CEO is assumed to possess private information about his ability, which the board needs in order to decide whether to replace him. If the board is more active in removing low quality CEOs, the incumbent is better able to use his information advantage to extract rents. Since the board cannot commit not to renegotiate the contract, a board that is fully independent from the CEO is more active than is efficient ex ante. For this reason, shareholders are better off if the board of directors lacks some independence. The model predicts that a trend toward greater board independence is associated with subsequent trends toward higher CEO turnover, more generous severance packages, and larger stock option grants. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2008.Download Info
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Bibliographic Info
Article provided by Wiley Blackwell in its journal Journal of Accounting Research.
Volume (Year): 46 (2008)
Issue (Month): 1 (03)
Pages: 137-171
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0021-8456
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Miriam Schwartz-Ziv & Michael Weisbach, 2011.
"What do Boards Really Do? Evidence from Minutes of Board Meetings,"
NBER Working Papers
17509, National Bureau of Economic Research, Inc.
- Schwartz-Ziv, Miriam & Weisbach, Michael S., 2011. "What Do Boards Really Do? Evidence from Minutes of Board Meetings," Working Paper Series 2011-19, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- Hadem, Michael, 2010. "Bedingungen und Konsequenzen des Wechsels von Finanzvorständen - Eine Analyse in großen börsennotierten Unternehmen," EconStor Theses, ZBW - German National Library of Economics, number 43681.
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