Board Independence and CEO Turnover
35 Pages Posted: 29 Apr 2005
There are 2 versions of this paper
Board Independence and CEO Turnover
Board Independence and CEO Turnover
Date Written: December 2006
Abstract
This paper analyzes how board independence affects the CEO's ability to extract rents from the firm. The CEO is assumed to possess private information about his ability, which the board needs in order to decide whether to replace him. If the board is more active in removing low quality CEOs, the incumbent is better able to use his information advantage to extract rents. Since the board cannot commit not to renegotiate the contract, a board that is fully independent from the CEO is more active than is efficient ex ante. For this reason, shareholders are better off if the board of directors lacks some independence. The model predicts that a trend toward greater board independence is associated with subsequent trends toward higher CEO turnover, more generous severance packages, and larger stock option grants.
Keywords: Corporate Governance, Board Independence, Severance Pay, CEO Turnover, Incentive Compensation, Renegotiation
JEL Classification: G34
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems
-
Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature
-
Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature
-
Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature
-
CEO Involvement in the Selection of New Board Members: An Empirical Analysis
By David Yermack and Anil Shivdasani
-
The Uncertain Relationship between Board Composition and Firm Performance
By Sanjai Bhagat and Bernard S. Black
-
The Non-Correlation between Board Independence and Long-Term Firm Performance
By Sanjai Bhagat and Bernard S. Black
-
The Non-Correlation between Board Independence And Long-Term Firm Performance
By Sanjai Bhagat and Bernard S. Black