Endogenously Chosen Boards of Directors and Their Monitoring of the CEO
AbstractA fundamental issue in governance research is how boards can be chosen through a process partially controlled by the CEO but yet can still be somewhat effective in monitoring the CEO. We offer an answer based on a model in which board effectiveness is a function of the board's independence. This, in turn, is a function of negotiations (implicit or explicit) between the existing directors and the CEO over who will fill vacancies on the board. We show how the CEO's bargaining power over the board-selection process depends on his perceived ability. Many empirical findings about board structure and performance arise as equilibrium phenomena in this model.
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Bibliographic InfoPaper provided by EconWPA in its series Microeconomics with number 9602001.
Length: 42 pages
Date of creation: 16 Feb 1996
Date of revision: 09 Oct 1996
Note: Type of Document - Postscript; prepared on IBM PC -- Scientific Workplace; pages: 42 ; figures: none
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Boards of Directors; Endogenous Monitoring;
Other versions of this item:
- Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, vol. 88(1), pages 96-118, March.
- Benjamin E. Hermalin & Michael S. Weisbach, 1996. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," Working Papers _004, University of California at Berkeley, Haas School of Business.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
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