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Disciplining and Screening Top Executives

Author

Listed:
  • Silvia Dominguez Martinez

    (Faculty of Economics & Business, University of Amsterdam)

  • Otto H. Swank

    (Erasmus School of Economics, Erasmus Universiteit Rotterdam)

  • Bauke Visser

    (Erasmus School of Economics, Erasmus Universiteit Rotterdam)

Abstract

Boards of directors face the twin task of disciplining and screening executives. To perform these tasks directors do not have detailed information about executives' behaviour, and only infrequently have information about the success or failure of initiated strategies, reorganizations, mergers etc. We analyse the nature of (implicit) retention contracts boards use to discipline and screen executives. Consistent with empirical observation, we find that executives may become overly active to show their credentials; that the link between bad performance and dismissal is weak; and that boards occasionally dismiss competent executives.

Suggested Citation

  • Silvia Dominguez Martinez & Otto H. Swank & Bauke Visser, 2006. "Disciplining and Screening Top Executives," Tinbergen Institute Discussion Papers 06-054/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20060054
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    References listed on IDEAS

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    Cited by:

    1. Ole‐Kristian Hope & Wayne B. Thomas, 2008. "Managerial Empire Building and Firm Disclosure," Journal of Accounting Research, Wiley Blackwell, vol. 46(3), pages 591-626, June.
    2. Marquardt, Blair B. & Myers, Brett W. & Niu, Xu, 2018. "Strategic voting and insider ownership," Journal of Corporate Finance, Elsevier, vol. 51(C), pages 50-71.

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    More about this item

    Keywords

    board of directors; turnover; retention contracts; selection; moral hazard; empire building;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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