COUNSEL 20 Lecture Notes - Lecture 4: Price Drop, Quid Pro Quo, Spurious Relationship
Document Summary
Tutorial 4, authors: benjamin e. hermalin and michael s. weisbach (2003) Having a board is one of the legal requirements for incorporation. Board of directors an economic institution that, in theory, helps to solve the agency problems inherent in managing an organization. A major conflict within the boardroom is between the ceo and the directors. The ceo has incentives to capture the board, so as to ensure that he can keep his job and increase the other benefits he derives from being ceo. Directors have incentives to maintain their independence, to monitor the ceo, and to replace the ceo if his performance is poor. Empirical research has more or less been making up for the lack of formal theory. A key issue in this empirical work is how to proxy for the board"s degree of independence from the ceo. Research thus far has established a number of empirical regularities:
