Where do the talented people work as outside directors?
AbstractThis paper develops a matching model in the director market with outside options to explain the equilibrium board quality. Based on Hermalin (2005) and Gabaix and Landier (2006), the board of directors has the function of monitoring and advising to affect the earning of firm assuming that the impact of a CEO's quality increases with the size of the firm under his control. This model shows that the big firms make board positions more attractive compared to outside options. Also, only when the impact of the advising by the board is strong, the more talented CEO can induce the high qualified outside directors. It follows that the board quality increases. Additionally, the model can explain the observed fact that the quality of directors on the same boards is dispersed. The estimations suggest that the talented ongoing CEOs and retired CEOs go to the firms which have the high market capitalization values and the large amount of sales. The evidence for the effect of the incumbent CEO's talent is mixed. I also find that the firms which have a large amount of sales pay more to outside directors. The compensation for directors, however, does not affect the quality of boards.
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Bibliographic InfoPaper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2007-006.
Length: 41 pages
Date of creation: May 2007
Date of revision:
Corporate governance; Board of director; Job search; Matching;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-26 (All new papers)
- NEP-BEC-2007-05-26 (Business Economics)
- NEP-LAB-2007-05-26 (Labour Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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