Explicit vs. Implicit Contracts : Evidence from CEO Employment Agreements

We report evidence on the determinants of whether the relationship between a firm and its Chief Executive Officer (CEO) is governed by an explicit (written) or an implicit agreement. We find that fewer than half of the CEOs of Samp;P 500 firms have comprehensive explicit employment agreements. Consistent with contracting theory, explicit agreements are more likely to be observed, and are likely to have a longer duration, where the sustainability of the relationship is less certain and where the expected loss to the CEO is greater if the firm fails to honor the agreement