The paper analyzes how much autonomy a board will grant managers who are better informed how their productivity/vision changes over time. Autonomy determines whether managers depart following conflicts with the board, potentially appearing to leave voluntarily, or are forced out following underperformance. It further affects severance and compensation agreements, and has implications for contract length and the use of renewable contracts. Among the model’s insights is that contracts are shorter, and replacing CEOs following underperformance is more likely in industry downturns, appearing to outsiders as lack of relative performance evaluation. Furthermore, firms might prefer hiring older managers with better outside options..
Author:
Vladimir Vladimirov (University of Amsterdam)
Discussant:
Nataliya Klimenko (University of Zurich)