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Corporate Governance and the Information Gap

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Well-designed incentives, more than checks and balances, will help reduce the information asymmetry between senior management and the board of directors. Information asymmetry may never be more pronounced than in the imbalance between managers and board members. Simply put, management knows more than the board. To level the playing field, the board can implement performance-based incentive systems. But as these authors point out, to what extent should boards integrate financial and non-financial measures of performance in corporate incentive plans?
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