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Codes of Best Practice in Competitive Markets for Managers

Author

Listed:
  • Eduard Alonso-Paulí
  • David Pérez-Castrillo
Abstract
We study firms' corporate governance 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 managerial control but makes manager's decisions hard to react when market conditions change. It tends to be adopted in markets with low volatility and in low-competitive environments. The firms with the best projects tend to adopt the Code when managers are nottoo 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, the shareholders with the best projects might be willing to renounce to hire the best managers, signing contracts including Codes with lower-ability managers.

Suggested Citation

  • Eduard Alonso-Paulí & David Pérez-Castrillo, 2008. "Codes of Best Practice in Competitive Markets for Managers," Working Papers 330, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:330
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Inés Macho-Stadler & David Pérez-Castrillo, 2018. "Moral hazard: Base models and two extensions," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume I, chapter 16, pages 453-485, Edward Elgar Publishing.
    2. Inés Macho-Stadler & David Pérez-Castrillo, 2021. "Agency theory meets matching theory," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 12(1), pages 1-33, March.
    3. Kanidska Dam, 2015. "Incentives and Income Distribution in Tenancy Relationships," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(3), pages 512-543, September.
    4. Louise Osemeke & Emmanuel Adegbite, 2016. "Regulatory Multiplicity and Conflict: Towards a Combined Code on Corporate Governance in Nigeria," Journal of Business Ethics, Springer, vol. 133(3), pages 431-451, February.
    5. Macho-Stadler, Inés & Pérez-Castrillo, David & Porteiro, Nicolás, 2014. "Coexistence of long-term and short-term contracts," Games and Economic Behavior, Elsevier, vol. 86(C), pages 145-164.
    6. Ghatak, Maitreesh & Karaivanov, Alexander, 2014. "Contractual structure in agriculture with endogenous matching," Journal of Development Economics, Elsevier, vol. 110(C), pages 239-249.
    7. Albert Banal-Estañol & Inés Macho-Stadler & David Pérez-Castrillo, 2013. "Endogenous Matching in University-Industry Collaboration: Theory and Empirical Evidence from the UK," Working Papers 704, Barcelona School of Economics.
    8. Peterson K. Ozili, 2021. "Corporate governance research in Nigeria: a review," SN Business & Economics, Springer, vol. 1(1), pages 1-32, January.
    9. Alonso-Paulí, Eduard & André, Francisco J., 2015. "Standardized environmental management systems as an internal management tool," Resource and Energy Economics, Elsevier, vol. 40(C), pages 85-106.

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    More about this item

    Keywords

    G-34; D-82;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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