Dynamic Governance

摘要

We model long-run dynamics of corporate governance,management compensation,and firm performance in framework where governance policy is determined by a shareholdervalue- maximizing board in a nonstationary enviornment. We show that firm performance,managerial compensation and governance policies which can only be rationalized by managerial influences in a single period context naturally arise in this dynamic setting. For example,even when managers have no control over governance or compensation policy,high management compensation and lax governance is likely to be associated with poor firm performance. Substantial variation in management pay is generated by luck and diversion is likely to accompany stock price reversals which follows sustained increases in shareholder value. Further,we demonstrate that optimal governance structures vary with the legal system and asset characteristics of the firm,with passive "do-nothing" boards being an ex ante rational response to rising firm valuations.