Codes of best practices in competitive markets for managers
Alonso-Paulí, Eduard (Universidad Pablo de Olavide)
Pérez-Castrillo, David (Universitat Autònoma de Barcelona. Departament d'Economia i d'Història Econòmica)

Date:	2012
Abstract:	We study the corporate governance of firms in environments where possibly heterogeneous shareholders compete for possibly heterogeneous managers. A firm, formed by a shareholder and a manager, can sign either an incentive contract or a contract including a Code of Best Practice. A Code allows for better management control, but makes it hard for managers to react quickly when market conditions change. Codes tend to be adopted in markets with low volatility and in environments where managers obtain low levels of benefits. The firms with the best projects tend to adopt a Code when managers are not too heterogeneous, while the best managers tend to be hired through incentive contracts when the projects are similar. Although the matching between shareholders and managers is often positively assortative, shareholders with the best projects might be willing to renounce hiring the best managers; instead, signing contracts including Codes with lower-ability managers.
Grants:	Ministerio de Economía y Competitividad ECO2009-07616 Ministerio de Ciencia e Innovación ECO2008-04321/ECON Agència de Gestió d'Ajuts Universitaris i de Recerca 2009/SGR-169 Ministerio de Economía y Competitividad CSD2006-00016
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Language:	Anglès
Document:	Article ; recerca ; Versió acceptada per publicar
Subject:	Corporate governance ; Incentives ; Moral hazard ; Matching model ; Sharpe ratio
Published in:	Economic theory, Vol. 49, Num. 1 (2012) , p. 113-141, ISSN 1432-0479

DOI: 10.1007/s00199-010-0537-y

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