Optimal Corporate Governance Structures

• Andres Almazan ^[2] ; Javier Suarez ^[1]
  1. [1] Centro de Estudios Monetarios y Financieros

     Centro de Estudios Monetarios y Financieros

     Madrid, España

     
  2. [2] University of Texas
• Localización: Documentos de Trabajo ( CEMFI ), Nº. 7 (Working Paper No. 9907, July 1999), 1999
• Idioma: inglés
• Enlaces
  • Texto completo (pdf)
• Resumen

  • 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.