Corporate Governance When Founders are Directors
Shanghai Advanced Institute of Finance, Shanghai Jiaotong University
Harvard Business School
December 30, 2010
Journal of Financial Economics, Vol. 102, No. 2, pp. 454-469, November 2011
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: CEO Compensation, CEO Turnover, Founder, Corporate Governance, Board of Directors
JEL Classification: G3, G34
Date posted: January 8, 2011 ; Last revised: November 24, 2011
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