A Survey of Recent Evidence on Boards of Directors and CEO Incentives

A Survey of Recent Evidence on Boards of Directors and CEO Incentives

Ronald Masulis

Series number :

Serial Number: 
652/2020

Date posted :

January 28 2020

Last revised :

January 30 2020
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Keywords

  • boards • 
  • directors • 
  • CEO Incentives • 
  • Independent Directors

This article surveys the recent literature on boards of directors and the interplay between director incentives and CEO incentives. The primary focus is on how the incentives and other characteristics of directors, boards and CEOs interact to affect firm performance.

The article reviews the recent evidence documenting a causal relationship between board independence and measures of firm performance. It also discusses the major limitations of the current measure of director independence. Finally, the article highlights how board independence provides strong incentives for CEOs to create firm value and examines the recent evidence on what other director characteristics improve board effectiveness.

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