Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/23419
Authors: 
Laux, Volker
Year of Publication: 
2005
Series/Report no.: 
Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting 154
Abstract: 
It is widely believed that the ideal board in corporations is composed almost entirely of independent (outside) directors. In contrast, this paper shows that some lack of board independence can be in the interest of shareholders. This follows because a lack of board independence serves as a substitute for commitment. Boards that are dependent on the incumbent CEO adopt a less aggressive CEO replacement rule than independent boards. While this behavior is inefficient ex post, it has positive ex ante incentive effects. The model suggests that independent boards (dependent boards) are most valuable to shareholders if the problem of providing appropriate incentives to the CEO is weak (severe).
Subjects: 
Corporate Governance
Board Independence
Severance Pay
CEO Turnover
Incentive Compensation
Document Type: 
Working Paper

Files in This Item:
File
Size
212.29 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.