{"title":"Executive Incentive Compatibility and Selection of Governance Mechanisms","authors":"Rong Xu, G. Zhang, Junyan Zhang, Zhigang Zheng","doi":"10.1111/acfi.12323","DOIUrl":null,"url":null,"abstract":"Executive incentive compatibility plays a crucial role in firm's selection of corporate governance mechanisms. We provide a simple model to explain why firms with enough executive incentive compatibility still prefer having external governance mechanisms, and firms with poor executive incentive compatibility have to rely on a combination of large investors monitoring and external governance. This model facilitates a better understanding of the co‐existence of the two governance mechanisms and also reconciles conflicting findings with respect to a substitutive and complementary relationship between the two governance mechanisms. Empirical evidence supports there is a substitutive relation between large investors monitoring and executive compensation.","PeriodicalId":134477,"journal":{"name":"ARN Wiley-Blackwell Publishers Journals","volume":"2013 1","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"5","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"ARN Wiley-Blackwell Publishers Journals","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1111/acfi.12323","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 5
Abstract
Executive incentive compatibility plays a crucial role in firm's selection of corporate governance mechanisms. We provide a simple model to explain why firms with enough executive incentive compatibility still prefer having external governance mechanisms, and firms with poor executive incentive compatibility have to rely on a combination of large investors monitoring and external governance. This model facilitates a better understanding of the co‐existence of the two governance mechanisms and also reconciles conflicting findings with respect to a substitutive and complementary relationship between the two governance mechanisms. Empirical evidence supports there is a substitutive relation between large investors monitoring and executive compensation.