Disciplining and Screening Top Executives

Tinbergen Institute Discussion Paper No. 06-054/1

41 Pages Posted: 22 Jun 2006

See all articles by Silvia Dominguez-Martinez

Silvia Dominguez-Martinez

University of Amsterdam - Amsterdam School of Economics (ASE)

Otto H. Swank

Erasmus University Rotterdam - Department of Economics; Tinbergen Institute Rotterdam (TIR)

Bauke Visser

Erasmus University Rotterdam - Department of Economics; Tinbergen Institute Rotterdam (TIR)

Date Written: June 2006

Abstract

Boards of directors face the twin task of disciplining and screening executives. To perform these tasks directors do not have detailed information about executives' behaviour, and only infrequently have information about the success or failure of initiated strategies, reorganizations, mergers, etc. We analyse the nature of (implicit) retention contracts boards use to discipline and screen executives. Consistent with empirical observation, we find that executives may become overly active to show their credentials; that the link between bad performance and dismissal is weak; and that boards occasionally dismiss competent executives.

Keywords: board of directors, turnover, retention contracts, selection, moral hazard, empire building

JEL Classification: G30, G34

Suggested Citation

Dominguez-Martinez, Silvia and Swank, Otto H. and Visser, Bauke, Disciplining and Screening Top Executives (June 2006). Tinbergen Institute Discussion Paper No. 06-054/1, Available at SSRN: https://ssrn.com/abstract=910876 or http://dx.doi.org/10.2139/ssrn.910876

Silvia Dominguez-Martinez (Contact Author)

University of Amsterdam - Amsterdam School of Economics (ASE) ( email )

Roetersstraat 11
Amsterdam, North Holland 1018 WB
Netherlands

Otto H. Swank

Erasmus University Rotterdam - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute Rotterdam (TIR)

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 4081448 (Phone)
+31 10 2120551 (Fax)

Bauke Visser

Erasmus University Rotterdam - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+ 31 (0)10 40 81449 (81441) (Phone)
+ 31 (0)10 40 89149 (Fax)

Tinbergen Institute Rotterdam (TIR)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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