Effects of Litigation Risk on Board Oversight and CEO Incentive Pay
通过模型分析发现，董事责任增加时，董事会可能通过加强监督或降低CEO激励薪酬来应对，两种手段相互影响，导致监督效果不确定；对于监督成本高的企业，更严格的法律环境反而会降低监督水平、激励薪酬和股东价值。
Various commentators have praised the WorldCom and Enron settlements for holding outside directors personally liable, arguing that heightened director liability will induce greater board oversight. This paper shows that the connection between director liability and board behavior is more subtle, because directors have multiple means to respond to an increase in liability exposure: They can increase oversight to prevent accounting manipulation and/or reduce performance-based CEO pay to mitigate the CEO's ex ante incentive to engage in manipulation. These two decisions are interrelated, implying that the effects of director liability on board oversight and CEO incentive pay are ambiguous. In particular, the model predicts that, for firms in which board oversight is difficult and costly (e.g., large firms with complex business operations), a stricter legal environment for directors leads to a lower level of board oversight, lower CEO incentive pay, and lower shareholder value.