Financial contracts for CEO
Institutional Approach to Global Corporate Governance: Business Systems and Beyond
ISBN: 978-1-84855-320-0, eISBN: 978-1-84855-321-7
Publication date: 1 November 2008
Abstract
When corporate governance is effective, new managerial contracts should maximize shareholder wealth. The Omnibus Budget Reconciliation Act (OBRA) of 1993 provides a natural environment to examine the effectiveness of corporate governance. We find that firms affected by OBRAs $1 million cap on non-performance-based compensation experience abnormally high returns around the board meeting and proxy dates when contracts are voted on. These findings are consistent with effective corporate governance and efficient contracting and contrary to expropriation theory. Firms not affected by OBRA do not have a positive stock price reaction to new contracts and increase both cash and bonus compensation.
Citation
Maisondieu-Laforge, O., Kim, Y.H. and Kim, Y.S. (2008), "Financial contracts for CEO", Choi, J.J. and Dow, S. (Ed.) Institutional Approach to Global Corporate Governance: Business Systems and Beyond (International Finance Review, Vol. 9), Emerald Group Publishing Limited, Leeds, pp. 187-206. https://doi.org/10.1016/S1569-3767(08)09009-2
Publisher
:Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited