IDEAS home Printed from https://ideas.repec.org/p/sbs/wpsefe/2007fe06.html
   My bibliography  Save this paper

To each according to her luck and power: Optimal corporate governance and compensation policy in a dynamic world

Author

Listed:
  • Thomas H. Noe

    ()

  • Michael J. Rebello

Abstract

We model long-run firm performance, management compensation, and corporate governance in a dynamic, nonstationary world. We show that managerial compensation and governance policies, which, in a single-period context, can best be rationalized by self-serving managerial influence over board policy, are shareholder-wealth maximizing in a dynamic setting. For example, shareholder wealth is maximized by governance policies that tie board deference to generous compensation and link the level of current compensation more to luck than performance. Further, under shareholder-wealth maximizing polices, managerial diversion of firm resources for private consumption is likely to accompany stock price declines which immediately follow sustained price increases and lax board oversight. Unless the the likelihood of a control transfer is large, stock-based managerial compensation may not produce as much shareholder value as simple salary contracts.

Suggested Citation

  • Thomas H. Noe & Michael J. Rebello, 2007. "To each according to her luck and power: Optimal corporate governance and compensation policy in a dynamic world," OFRC Working Papers Series 2007fe06, Oxford Financial Research Centre.
  • Handle: RePEc:sbs:wpsefe:2007fe06
    as

    Download full text from publisher

    File URL: http://www.finance.ox.ac.uk/file_links/finecon_papers/2007fe06.pdf
    Download Restriction: no

    More about this item

    Keywords

    governance; institutional design;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    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:sbs:wpsefe:2007fe06. 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: (Maxine Collett). General contact details of provider: http://edirc.repec.org/data/frcoxuk.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.

    We have no references for this item. You can help adding them by using 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.