Abstract
We model information sharing and subsequent voting among corporate directors, and use this framework to analyze coordination and communication problems in multi-agent boards. We consider a firm with an incumbent CEO of uncertain management ability and a board whose role is to evaluate the CEO for possible replacement. Each director receives an independent private signal about the CEO's ability, after which directors discuss the CEO's quality and subsequently vote to retain her or replace her with a new CEO. Each director has an incentive to replace a CEO of poor ability, since he owns some equity in the firm, whose long-run value is affected by the true ability of the incumbent CEO. However, if a director votes to fire a CEO but fails to oust her, the CEO can impose significant costs of dissent on him. In this setting, we characterize the equilibrium CEO firing decision made by boards with different characteristics, the optimal board size and board composition, and the effect of an additional imprecise public signal on the CEO firing decision. We also develop a dynamic extension to our basic model to analyze the timing of the board's CEO firing decision.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
