Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/38883
Authors: 
Graziano, Clara
Luporini, Annalisa
Year of Publication: 
2010
Series/Report no.: 
CESifo working paper Industrial Organisation 3028
Abstract: 
We analyze the optimal ownership, delegation and compensation structures when a manager is hired to run a firm and to gather information on investment projects. The initial owner has two tasks: monitoring the manager and supervising project choice. Optimality would require a large ownership stake for monitoring but a small stake for not interfering with managerial incentives. Delegating project choice to the manager can alleviate this conflict if managerial private benefits are not too small. The large shareholder retains full ownership of the firm but monitoring, and the resulting firing policy, are distorted. Severance pay plays a key role in the optimal compensation scheme. Delegation is interpreted as a dual-board structure.
Subjects: 
large shareholder
delegation
monitoring
board of directors
corporate governance
JEL: 
G34
L22
Document Type: 
Working Paper

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