Understanding Corporate Governance Through Learning Models of Managerial Competence

Fisher College of Business Working Paper No. 2014-03-04

Charles A. Dice Center Working Paper No. 2014-04

32 Pages Posted: 30 Mar 2014 Last revised: 18 Apr 2014

See all articles by Benjamin E. Hermalin

Benjamin E. Hermalin

University of California, Berkeley

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: March 27, 2014

Abstract

A manager’s shareholders, board of directors, and potential future employers are continually assessing his ability. A rich literature has documented that this insight has profound implications for corporate governance because assessment generates incentives (good and bad), introduces assorted risks, and affects the various battles that rage among the relevant actors for corporate control. Consequently, assessment (or learning) is a key perspective from which to study, evaluate, and possibly even regulate corporate governance. Moreover, because learning is a behavior notoriously subject to systematic biases, this perspective is a natural avenue through which to introduce behavioral and psychological insights into the study of corporate governance.

Keywords: Corporate Governance, Career Concerns, Learning and Assessment, Cognitive Biases

JEL Classification: G34, M12, D83, D81

Suggested Citation

Hermalin, Benjamin E. and Weisbach, Michael S., Understanding Corporate Governance Through Learning Models of Managerial Competence (March 27, 2014). Fisher College of Business Working Paper No. 2014-03-04. Available at SSRN: https://ssrn.com/abstract=2417278 or http://dx.doi.org/10.2139/ssrn.2417278

Benjamin E. Hermalin

University of California, Berkeley ( email )

545 Student Services Building, #1900
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Berkeley, CA 94720
United States
510-642-7575 (Phone)
510-643-1420 (Fax)

Michael S. Weisbach (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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