Stochastic Evolutionary Game Analysis Between Special Committees and CEO: Incentive and Supervision
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Stochastic Evolutionary Game Analysis Between Special Committees and CEO: Incentive and Supervision Xinmin Liu1,2 · Kangkang Lin1 · Lei Wang3 · Hongkun Zhang1 Accepted: 21 October 2020 © Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract Focusing on the problem of CEO incentive and supervision, this paper constructs a threeparty stochastic evolutionary game model of the CEO, compensation committee and audit committee, and analyzes the boundary conditions of the stability based on stochastic replicator dynamics equations. In addition, it carries out the numerical approximations with Taylor expansion and Itô -type stochastic differential equation, and further analyzes the influence of key variables on the direction and convergence rate of game players’ strategy choice. The results show that: (1) The probability that the CEO takes self-interested behavior falls faster and the probability that audit committee adopts supervisory strategy rises faster when the self-interested behavior of the CEO gets larger. (2) The audit committee has a fast convergence rate, and arrives earlier in the neighborhood of the stochastically stable state where the incentive coefficient adopted by the compensation committee is larger. (3) The increase in supervision intensity increases the convergence rate of the CEO, but decreases the convergence rate of the compensation committee. (4) According to a comparative analysis of noise intensity, the influence of random interference on the decision-making of the audit committee is more volatile. Keywords Special committee · Incentive · Supervisory · Stochastic evolutionary game · Governance strategy
1 Introduction In order to strengthen the governance of listed companies, China Securities Regulatory Commission (CSRC) launched the Code of Corporate Governance for listed companies in 2018, proposing that the board of directors should establish special committees to improve the quality of corporate governance. The establishment of special committees reflects the characteristics of corporation autonomy, an internal governance structure. * Kangkang Lin [email protected] 1
College of Economics and Management, Shandong University of Science and Technology, Qingdao 266590, China
2
School of Management, Qingdao Agricultural University, Qingdao 266109, China
3
School of Economics, Ocean University of China, Qingdao 266100, China
Vol.:(0123456789)
Dynamic Games and Applications
Special committee
establish
Function
Corporate strategy committee
long-term strategic development plans and major investment decisions of the company.
Audit committee
inspect the company's financial information and its disclosure
Compensation committee
study and review the remuneration policies and schemes for managers and other senior members
Nomination committee
formulate standards and procedures for the election of directors and make recommendations
Board of Directors
Fig. 1 Special committees and functions
Figure 1 shows the special committees and their functions. Tak
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