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http://ssrn.com/abstract=1572994
 
 

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Competition for Managers, Corporate Governance and Incentive Compensation


Viral V. Acharya


New York University - Leonard N. Stern School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance

Marc Gabarro


Erasmus University

Paolo F. Volpin


City University London - Faculty of Finance; London Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

January 2014

European Corporate Governance Institute (ECGI) - Finance Working Paper No. 399/2014
AFA 2011 Denver Meetings Paper

Abstract:     
Stricter governance standards incentivize managers to perform better and thus can be used as a cheaper substitute for pay for performance. However, when managerial talent is scarce, firms’ competition to attract better managers forces firms to pay managers more and thus reduces an individual firm’s incentives to invest in corporate governance. In equilibrium, better managers end up at firms with weaker governance, and conversely, better-governed firms employ lower-quality managers. Consistent with these implications, in a sample of US firms, we show that (i) better CEOs are matched to firms with weaker corporate governance and more so in industries with stronger competition for managers, and, (ii) corporate governance is more likely to change when there is CEO turnover, with governance weakening (strengthening) when the incoming CEO is better (worse) than the departing one.

Number of Pages in PDF File: 51

Keywords: corporate governance, executive compensation, externalities

JEL Classification: D82, G21, G18

working papers series


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Date posted: March 19, 2010 ; Last revised: January 10, 2014

Suggested Citation

Acharya, Viral V. and Gabarro, Marc and Volpin, Paolo F., Competition for Managers, Corporate Governance and Incentive Compensation (January 2014). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 399/2014; AFA 2011 Denver Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1572994 or http://dx.doi.org/10.2139/ssrn.1572994

Contact Information

Viral V. Acharya
New York University - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States
HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
New York University (NYU) - Department of Finance
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Marc Gabarro (Contact Author)
Erasmus University ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
Paolo F. Volpin
City University London - Faculty of Finance ( email )
London, EC2Y 8HB
Great Britain
London Business School
London
United Kingdom
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http:/www.ecgi.org
Feedback to SSRN


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