An economic analysis of corporate directors' fiduciary duties
AbstractI present a principal-agent model where the shareholders (principal) can take legal action against the director (agent). The court's decision provides a verifiable but costly and imperfect signal on the director's fulfilment of his fiduciary duties. The director's remuneration can be made contingent not only on performance but also upon the court's decision. I show that when damage awards are high enough, the widespread use of liability insurance and limited-liability provisions that is observed in the United States is optimal because it allows for a more efficient litigation strategy to be ex post rational for the shareholders.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Universidad Carlos III de Madrid in its series Open Access publications from Universidad Carlos III de Madrid with number info:hdl:10016/7658.
Length: 537 p.
Date of creation: 2003
Date of revision:
Publication status: Published in The RAND Journal of Economics (2003) v.v. 34, p.516-535
Contact details of provider:
Web page: http://www.uc3m.es
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- M. Martin Boyer, 2003. "Directors' and Officers' Insurance and Shareholders' Protection," CIRANO Working Papers 2003s-64, CIRANO.
- Aaron Finkle, 2010. "Contracts in the Shadow of the Law: Optimal Litigation Strategies within Organizations," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 9(2), pages 131-155, August.
- M. Martin Boyer, 2004. "Is the Demand for Corporate Insurance a Habit? Evidence of Organizational Inertia from Directors' and Officers' Insurance," CIRANO Working Papers 2004s-33, CIRANO.
- Engert, Andreas & Goldlücke, Susanne, 2013. "Why agents need discretion: The business judgment rule as optimal standard of care," Working Papers 13-04, University of Mannheim, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Contact person).
If references are entirely missing, you can add them using this form.