Corporate Governance When Founders are Directors
Shanghai Advanced Institute of Finance, Shanghai Jiaotong University
Harvard Business School
December 23, 2010
Journal of Financial Economics, Forthcoming
We examine CEO compensation, CEO retention policies, and M&A decisions in firms where founders serve as a director with a non-founder CEO (founder-director firms). We find that founder-director firms offer a different mix of incentives to their CEOs than other firms. Pay for performance sensitivity for non-founder CEOs in founder-director firms is higher and the level of pay is lower than that of other CEOs. CEO turnover sensitivity to firm performance is also significantly higher in founder-director firms compared to non-founder firms. Overall, the evidence suggests that boards with founder-directors provide more high powered incentives in the form of pay and retention policies than the average U.S. board. Stock returns around M&A announcements and board attendance are also higher in founder-director firms compared to non-founder firms.
Number of Pages in PDF File: 51
Keywords: Founder, CEO compensation, CEO turnover, family firms, corporate governance, board of directors
JEL Classification: G3, G34
Date posted: August 23, 2010 ; Last revised: January 9, 2011
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