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Optimal Corporate Governance Structures

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  • Andrés Almazán
  • Javier Suarez

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.

Suggested Citation

  • Andrés Almazán & Javier Suarez, 1999. "Optimal Corporate Governance Structures," Working Papers wp1999_9907, CEMFI.
    • Handle: RePEc:cmf:wpaper:wp1999_9907
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    References listed on IDEAS

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    Cited by:

    1. Benjamin E. Hermalin & Michael S. Weisbach, 2003. "Boards of directors as an endogenously determined institution: a survey of the economic literature," Economic Policy Review, Federal Reserve Bank of New York, vol. 9(Apr), pages 7-26.
    2. Francesca di Donato & Delio Panaro & Sara Trucco, 2016. "Board Gender Diversity, Network and Firms’ Performance in the Italian Listed Companies," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(10), pages 332-332, September.

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    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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