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Optimal Corporate Governance Structures

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Author Info
Andres Almazan (University of Texas at Austin)
Javier Suarez (CEMFI)

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Abstract

This 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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File URL: http://fmwww.bc.edu/RePEc/es2000/1112.pdf
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Publisher Info
Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1112.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1112

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  1. 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. [Downloadable!] (restricted)
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This page was last updated on 2009-12-2.

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