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Disciplining and Screening Top Executives

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Author Info
Silvia Dominguez Martinez () (Erasmus Universiteit Rotterdam)
Otto H. Swank () (Erasmus Universiteit Rotterdam)
Bauke Visser (Erasmus Universiteit Rotterdam)

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Abstract

Boards of directors face the twin task of disciplining and screening executives. To perform these tasks directors do not have detailed information about executives' behaviour, and only infrequently have information about the success or failure of initiated strategies, reorganizations, mergers etc. We analyse the nature of (implicit) retention contracts boards use to discipline and screen executives. Consistent with empirical observation, we find that executives may become overly active to show their credentials; that the link between bad performance and dismissal is weak; and that boards occasionally dismiss competent executives.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 06-054/1.

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Date of creation: 19 Jun 2006
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Handle: RePEc:dgr:uvatin:20060054

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Related research
Keywords: board of directors turnover retention contracts selection moral hazard empire building

Find related papers by JEL classification:
G30 - Financial Economics - - Corporate Finance and Governance - - - General
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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