Optimal Delegation when the Large Shareholder has Multiple Tasks

Clara Graziano and Annalisa Luporini ()

No 3028, CESifo Working Paper Series from CESifo

Abstract: We analyze the optimal ownership, delegation and compensation structures when a manager is hired to run a firm and to gather information on investment projects. The initial owner has two tasks: monitoring the manager and supervising project choice. Optimality would require a large ownership stake for monitoring but a small stake for not interfering with managerial incentives. Delegating project choice to the manager can alleviate this conflict if managerial private benefits are not too small. The large shareholder retains full ownership of the firm but monitoring, and the resulting firing policy, are distorted. Severance pay plays a key role in the optimal compensation scheme. Delegation is interpreted as a dual-board structure.

Keywords: large shareholder; delegation; monitoring; board of directors; corporate governance (search for similar items in EconPapers)
JEL-codes: G34 L22 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Optimal Delegation when the Large Shareholder has Multiple Tasks (2010)
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