Publications

Journal Article

The authors provide evidence on the efficiency of shareholder voting as a control mechanism by examining both the determinants of a firm’s decision to adopt equity-based compensation plans with or without shareholder approval, and the relation between shareholder approval and firm performance in the future.

The authors develop our hypotheses based on the “nexus of contracts” view of the firm (Coase 1937; Jensen and Meckling 1976; Fama and Jensen 1983; Aghion and Tirole 1997) which argues that shareholders allocate decision rights to boards and managers because they have the expertise and specialized knowledge necessary to maximize firm value.

However, because managers have incentives to engage in actions to promote their own self-interest, potentially at the expense of firm value, shareholders will also implement incentive structures such as equity-based compensation plans to reduce potential agency costs related to the delegation of decision rights.