CEO Power, Compensation, and Governance

Rui Albuquerque and Jianjun Miao
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Rui Albuquerque: Boston University, Catolica-Lisbon School of Business and Economics, CEPR, and ECGI

Annals of Economics and Finance, 2013, vol. 14, issue 2, 443-479

Abstract: This paper presents a contracting model of governance based on the premise that CEOs are the main promoters of governance change. CEOs use their power to extract higher pay or private benefits, and different governance structures are preferred by different CEOs as they favor one or the other type of compensation. The model explains why good country-wide investor protection breeds good firm governance and predicts a "race to the top" in firm-governance quality after the Sarbanes-Oxley Act. However, such governance changes may be associated with higher rather than lower CEO pay as CEOs substitute away from private benefits. The model also provides an explanation for the observed correlation of CEO pay and firm governance as driven by CEO power.

Keywords: CEO power; Moral hazard; CEO compensation; Corporate governance; Investor protection (search for similar items in EconPapers)
JEL-codes: G34 J33 K00 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: CEO Power, Compensation, and Governance (2006)
Working Paper: CEO Power, Compensation and Governance (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2013:v:14:i:2:albuquerque:miao

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