Information Control, Career Concerns, and Corporate Governance
- Author(s): FENGHUA SONG, ANJAN V. THAKOR
- Published: Aug 03, 2006
- Pages: 1845-1896
- DOI: 10.1111/j.1540-6261.2006.00891.x
We examine corporate governance effectiveness when the CEO generates project ideas and the board of directors screens these ideas for approval. However, the precision of the board's screening information is controlled by the CEO. Moreover, both the CEO and the board have career concerns that interact. The board's career concerns cause it to distort its investment recommendation procyclically, whereas the CEO's career concerns cause her to sometimes reduce the precision of the board's information. Moreover, the CEO sometimes prefers a less able board, and this happens only during economic upturns, suggesting that corporate governance will be weaker during economic upturns.