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Optimal Corporate Governance Structures


  • Almazan, A.
  • Suarez, J.


This paper explores how motivating an incumbent CEO to make investments that improve the effectiveness of the firm's organization 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 effective control of the board (entrenchment) can be desirable and offer predictions on the correlation between the elements of his compensation package and the degree of board independence.

Suggested Citation

  • Almazan, A. & Suarez, J., 1999. "Optimal Corporate Governance Structures," Papers 9907, Centro de Estudios Monetarios Y Financieros-.
  • Handle: RePEc:fth:cemfdt:9907

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    References listed on IDEAS

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    Cited by:

    1. Benjamin E. Hermalin & Michael S. Weisbach, 2003. "Boards of directors as an endogenously determined institution: a survey of the economic literature," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 7-26.

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory


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