Optimal Corporate Governance Structures
AbstractThis paper explores how motivating an incumbent CEO to make investments that improve the effectiveness of the firm organization under his management interacts with the replacement policy of the board of directors. We characterize the optimal compensation package (including severance pay) under governance structures that differ in the power that the incumbent CEO has on the board of directors. We explain why yielding the incumbent CEO some control of the board (entrenchment) can be desirable and offer predictions on when this arrangement is optimal. We also examine the correlation between the elements of his compensation package and the structure of the board.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2391.
Date of creation: Feb 2000
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Other versions of this item:
- Almazan, A. & Suarez, J., 1999. "Optimal Corporate Governance Structures," Papers 9907, Centro de Estudios Monetarios Y Financieros-.
- Andres Almazan & Javier Suarez, 2000. "Optimal Corporate Governance Structures," Econometric Society World Congress 2000 Contributed Papers 1112, Econometric Society.
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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- Benjamin E. Hermalin & Michael S. Weisbach, 2003.
"Boards of directors as an endogenously determined institution: a survey of the economic literature,"
Economic Policy Review,
Federal Reserve Bank of New York, issue Apr, pages 7-26.
- Benjamin E. Hermalin & Michael S. Weisbach, 2001. "Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature," NBER Working Papers 8161, National Bureau of Economic Research, Inc.
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