Abstract

http://ssrn.com/abstract=1663905
 
 

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Corporate Governance When Founders are Directors


Feng Li


University of Michigan, Stephen M. Ross School of Business

Suraj Srinivasan


Harvard Business School

December 23, 2010

Journal of Financial Economics, Forthcoming

Abstract:     
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

working papers series


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Date posted: August 23, 2010 ; Last revised: January 9, 2011

Suggested Citation

Li, Feng and Srinivasan, Suraj, Corporate Governance When Founders are Directors (December 23, 2010). Journal of Financial Economics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1663905 or http://dx.doi.org/10.2139/ssrn.1663905

Contact Information

Feng Li
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
Suraj Srinivasan (Contact Author)
Harvard Business School ( email )
Soldiers Field
Boston, MA 02163
United States
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=10700
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