American Economic Review Vol. 88 No. 1 1998
Endogenously Chosen Boards of Directors and Their Monitoring of the CEO
Abstract
How can boards be chosen through a process partially controlled by the CEO, yet, in many instances, still be effective monitors of him? We offer an answer based on a model in which board effectiveness is a function of its independence. This, in turn, is a function of negotiations (implicit or explicit) between existing directors and the CEO over who will fill vacancies on the board. The CEO's bargaining power over the board-selection process comes from his perceived ability relative to potential successors. Many empirical findings about board structure and performance arise as equilibrium phenomena of this model.
- Volume
- 88
- Issue
- 1
- Pages
- 96-118
- Sources
- bibtex:phds-export.bib