Optimal Corporate Governance Structures

Javier Suarez and Andres Almazan

No 2391, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper explores how motivating an incumbent CEO to make investments that improve the effectiveness of the firm organization under his management interacts with the replacement policy of the board of directors. We characterize the optimal compensation package (including severance pay) under governance structures that differ in the power that the incumbent CEO has on the board of directors. We explain why yielding the incumbent CEO some control of the board (entrenchment) can be desirable and offer predictions on when this arrangement is optimal. We also examine the correlation between the elements of his compensation package and the structure of the board.

Keywords: Board of directors; Corporate governance; Severance payment; Takeovers (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 2000-02
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Optimal Corporate Governance Structures (2000)
Working Paper: Optimal Corporate Governance Structures (1999)
Working Paper: Optimal Corporate Governance Structures (1999)
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