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Corporate governance when founders are directors

  • Li, Feng
  • Srinivasan, Suraj
Registered author(s):

We examine chief executive officer (CEO) compensation, CEO retention policies, and mergers and acquisition (M&A) decisions in firms in which founders serve as a director with a nonfounder CEO (founder-director firms). We find that founder-director firms offer a different mix of incentives to their CEOs than other firms. Pay-for-performance sensitivity for nonfounder CEOs in founder-director firms is higher and the level of pay is lower than that of other CEOs. CEO turnover sensitivity to firm performance is also significantly higher in founder-director firms compared with nonfounder firms. Overall, the evidence suggests that boards with founder-directors provide more high-powered incentives in the form of pay and retention policies than the average US board. Stock returns around M&A announcements and board attendance are also higher in founder-director firms compared with nonfounder firms.

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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 102 (2011)
Issue (Month): 2 ()
Pages: 454-469

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Handle: RePEc:eee:jfinec:v:102:y:2011:i:2:p:454-469
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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