Stochastic Evolutionary Game Analysis Between Special Committees and CEO: Incentive and Supervision

Xinmin Liu, Kangkang Lin (), Lei Wang and Hongkun Zhang
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Xinmin Liu: Shandong University of Science and Technology
Kangkang Lin: Shandong University of Science and Technology
Lei Wang: Ocean University of China
Hongkun Zhang: Shandong University of Science and Technology

Dynamic Games and Applications, 2021, vol. 11, issue 3, No 5, 538-555

Abstract: Abstract Focusing on the problem of CEO incentive and supervision, this paper constructs a three-party stochastic evolutionary game model of the CEO, compensation committee and audit committee, and analyzes the boundary conditions of the stability based on stochastic replicator dynamics equations. In addition, it carries out the numerical approximations with Taylor expansion and $$It{\hat{o}}$$ I t o ^ -type stochastic differential equation, and further analyzes the influence of key variables on the direction and convergence rate of game players' strategy choice. The results show that: (1) The probability that the CEO takes self-interested behavior falls faster and the probability that audit committee adopts supervisory strategy rises faster when the self-interested behavior of the CEO gets larger. (2) The audit committee has a fast convergence rate, and arrives earlier in the neighborhood of the stochastically stable state where the incentive coefficient adopted by the compensation committee is larger. (3) The increase in supervision intensity increases the convergence rate of the CEO, but decreases the convergence rate of the compensation committee. (4) According to a comparative analysis of noise intensity, the influence of random interference on the decision-making of the audit committee is more volatile.

Keywords: Special committee; Incentive; Supervisory; Stochastic evolutionary game; Governance strategy (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s13235-020-00372-x

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