IDEAS home Printed from https://ideas.repec.org/p/inu/caeprp/2007006.html
   My bibliography  Save this paper

Where do the Talented People Work as Outside Directors?

Author

Listed:
  • Changmin Lee

    () (Hanyang University - Seoul Campus)

Abstract

This 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.

Suggested Citation

  • Changmin Lee, 2007. "Where do the Talented People Work as Outside Directors?," CAEPR Working Papers 2007-006, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
  • Handle: RePEc:inu:caeprp:2007006
    as

    Download full text from publisher

    File URL: https://caepr.indiana.edu/RePEc/inu/caeprp/CAEPR2007-006.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
    2. Changmin Lee, 2007. "What's Happened over the Past 10 Years to the Selection of Retired CEOs as Board Members?," CAEPR Working Papers 2007-007, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington, revised Oct 2008.
    3. Stephen P. Ferris & Murali Jagannathan & A. C. Pritchard, 2003. "Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments," Journal of Finance, American Finance Association, vol. 58(3), pages 1087-1112, June.
    4. Lars Ljungqvist & Thomas J. Sargent, 2004. "Recursive Macroeconomic Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026212274x, September.
    5. Brickley, James A. & Linck, James S. & Coles, Jeffrey L., 1999. "What happens to CEOs after they retire? New evidence on career concerns, horizon problems, and CEO incentives," Journal of Financial Economics, Elsevier, vol. 52(3), pages 341-377, June.
    6. 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.
    7. Raheja, Charu G., 2005. "Determinants of Board Size and Composition: A Theory of Corporate Boards," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(2), pages 283-306, June.
    8. Kevin J. Murphy & Ján Zábojník, 2004. "CEO Pay and Appointments: A Market-Based Explanation for Recent Trends," American Economic Review, American Economic Association, vol. 94(2), pages 192-196, May.
    9. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, September.
    10. Kaplan, Steven N. & Reishus, David, 1990. "Outside directorships and corporate performance," Journal of Financial Economics, Elsevier, vol. 27(2), pages 389-410, October.
    11. Benjamin E. Hermalin, 2005. "Trends in Corporate Governance," Journal of Finance, American Finance Association, vol. 60(5), pages 2351-2384, October.
    12. Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organization and Inequality in a Knowledge Economy," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1383-1435.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Corporate governance; Board of director; Job search; Matching;

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inu:caeprp:2007006. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Center for Applied Economics and Policy Research). General contact details of provider: http://edirc.repec.org/data/caeprus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.