Optimal Corporate Governance Structures

Andres Almazan and Javier Suarez
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Andres Almazan: University of Texas at Austin

No 1112, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

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.

Date: 2000-08-01
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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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