Board of discord: Conflicting preferences and performance pay

Board of discord: Conflicting preferences and performance pay

Blog Article

AbstractThis study examines musculotubal canal the interaction of conflicting preferences among directors, performance pay, and group effort.I model a corporate board in which directors voluntarily choose to research (or not research) an investment decision made by the board on behalf of the firm.Free-riding among directors creates a need for performance pay to motivate this costly research.

The study shows that board diversity, modeled as heterogeneous personal preferences among directors over the chosen investment, can act as a substitute for costly performance pay kel instruments soil tester and, in equilibrium, benefit the firm.This creates a direct financial incentive for firms to increase board diversity.The study then shows how the optimal level of diversity changes with board and firm characteristics and generates a set of testable empirical predictions.