Optimal Corporate Governance Structures

A. Almazan and Javier Suarez

Working Papers from Centro de Estudios Monetarios Y Financieros-

Abstract: This paper explores how motivating an incumbent CEO to make investments that improve the effectiveness of the firm's organization 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 effective control of the board (entrenchment) can be desirable and offer predictions on the correlation between the elements of his compensation package and the degree of board independence.

Keywords: INVESTMENTS; BUSINESS ORGANIZATION; BUSINESS FINANCING (search for similar items in EconPapers)
JEL-codes: D21 E22 G30 (search for similar items in EconPapers)
Pages: 39 pages
Date: 1999
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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 (2000)
Working Paper: Optimal Corporate Governance Structures (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:cemfdt:9907

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