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1 – 10 of 133Emrah Ekici and Marina Y. Ruseva
The authors examine the role of stock liquidity in CEO equity compensation design. For a sample of publicly traded firms from 2007 to 2020, the authors find that greater stock…
Abstract
The authors examine the role of stock liquidity in CEO equity compensation design. For a sample of publicly traded firms from 2007 to 2020, the authors find that greater stock liquidity is associated with a higher proportion of stock awards relative to the proportion of options in CEO equity compensation. The results of this study suggest that stock price informativeness on the grant date has a differential effect on the preference for the type of equity compensation awarded to CEOs. The empirical results are supported by multivariate analyses using alternative measures of stock liquidity and a two-stage least squares (2SLS) specification that alleviates endogeneity concerns. Furthermore, the authors document that the firm-specific increase in the proportion of stock awards compared to the proportion of stock options is associated with a firm-specific increase in stock liquidity. Collectively, the analyses suggest that stock liquidity as a measure of stock price informativeness contributes to the choice of CEO equity compensation design.
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Yixi Ning, Ke Zhong and Lihong Chen
This study aims to examine the effect of CEO compensation risk, as measured by the proportion of equity-based pay (option and stock awards) relative to total compensation and pay…
Abstract
Purpose
This study aims to examine the effect of CEO compensation risk, as measured by the proportion of equity-based pay (option and stock awards) relative to total compensation and pay sensitivity to stock volatility, on CEO pay for luck asymmetry. This paper also empirically examines CEO compensation risk as a mediating variable between the regulatory changes and CEO pay for luck asymmetry.
Design/methodology/approach
This paper test the proposed two hypothesis that CEO compensation risk is positively associated with the degree of CEO pay for luck asymmetry; and the pay related regulations implemented around 2006 could mitigate the degree of CEO pay for luck asymmetry using the fixed-effects regression models.
Findings
Consistent with the managerial talent retention hypothesis, this paper finds that CEO compensation risk, as measured by the equity-based pay as a proportion of CEO total compensation and CEO pay sensitivity to stock volatility, is positively associated with the degree of CEO pay for luck asymmetry. In addition, this paper find that CEO pay for luck asymmetry is significantly reduced by the major regulatory changes on executive compensation implemented around 2006.
Research limitations/implications
This study is among the very few studies exploring the impact of CEO compensation risk on pay for luck asymmetry in the literature. While the major purpose of the widely used stock options is to align executive interests and shareholder values, it also tends to increase the risk level of CEO compensation. So, a well-designed CEO pay package should protect risk-averse CEOs from bad luck for the retention purpose, which is also beneficial to shareholder wealth maximization. Therefore, future research on executive compensation needs to examine the issue from various perspectives.
Practical implications
For board of directors who is responsible for the compensation of CEOs, it is necessary to consider a broad range of factors when designing an optimal CEO pay package.
Social implications
The findings on the impact of regulations on CEO pay for luck asymmetry suggest that the executive-pay-related regulations around 2006 have indeed achieved some of their intended goals to significantly lower pay for nonperformance asymmetry, whereby CEO pay sensitivity to stock volatility has been identified as a major mediating variable.
Originality/value
This study contributes to the literature on executive pay for luck asymmetry in several perspectives. First, this paper finds that CEO compensation risk has a positive impact on the degree of CEO pay for luck asymmetry. Second, this paper finds that the CEO pay for luck asymmetry has been mitigated after 2006 when various regulatory changes on executive compensation began to be implemented in the USA. To the best of the authors’ knowledge, this study is among the very few studies investigating these issues in the literature.
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The current study aims to investigate the mediating role of executive stock options in the nonlinear relationship between financial constraints and research and development (R&D…
Abstract
Purpose
The current study aims to investigate the mediating role of executive stock options in the nonlinear relationship between financial constraints and research and development (R&D) investment through two measures of financial constraints.
Design/methodology/approach
This study is based on a sample of 90 French firms for the period extending from 2008 to 2020. The authors employ a panel threshold method to analyze whether the impact of financial constraints on R&D investment depends on the level of financial constraints or not.
Findings
Using SA index (Hadlock and Pierce, 2010) and FCP index (Schauer et al., 2019) as measures of financial constraints, the authors demonstrate that the relationship between financial constraints and R&D investment is nonlinear. Moreover, the authors find that executive stock options mediate partially the relationship between financial constraints and R&D investment. More specifically, the authors show that stock options could play two roles depending on the level of the financial constraints; inconsistent mediation for firms with low/medium level of financial constraints and partial mediation for highly constrained firms.
Originality/value
This paper is the first to the best of the authors' knowledge to investigate the nonlinear relationship between financial constraints and R&D investment as well as the mediating role of executive stock option using dynamic panel threshold models.
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Jose Luis Rivas, Felix Lopez-Iturriaga and Mathew Semadeni
This study aims to explore the relationship between foreignness and CEO pay.
Abstract
Purpose
This study aims to explore the relationship between foreignness and CEO pay.
Design/methodology/approach
This study combines cross-sectional and time series observations analyzed with panel data methodology in a sample of 59 firms listed in the Spanish IBEX-35 index between 2006 and 2020.
Findings
International ownership influences CEO underpayment and foreign sales influence CEO overpayment.
Practical implications
CEO pay is susceptible to being influenced by foreign non-American variables. An appropriate understanding of these factors can contribute to discussing policies that balance the level of CEO payment in large public firms.
Originality/value
Research on internationalization and CEO pay is scarce. A handful of studies confirm the link between Americanization and executive compensation in Europe. However, the authors still do not know if the level of CEO pay is influenced by non-American exposure. To do this, the authors test the effect of firm – ownership, sales, board – and individual – CEO – exposure to international, non-US environments on the level of over/underpayment of CEOs in a sample of Spanish firms.
Objetivo
Explorar la relación entre la extranjerÃa y la remuneración de los CEO.
Diseño/metodología/enfoque
Combinamos observaciones transversales y de series temporales analizadas con metodologÃa de datos de panel en una muestra de 59 empresas del Ãndice IBEX-35 español entre 2006 y 2020.
Resultados
La propiedad internacional influye en la remuneración insuficiente de los CEO y las ventas en el extranjero influyen en la remuneración excesiva de los CEO.
Originalidad:
La investigación sobre la internacionalización y la remuneración de los CEO es escasa. Un puñado de estudios confirman el vÃnculo entre la americanización y la remuneración de los ejecutivos en Europa. Sin embargo, todavÃa no sabemos si el nivel de remuneración de los CEO está influenciado por la exposición no estadounidense. Para ello, probamos el efecto de la exposición de la empresa (propiedad, ventas, consejo) y del individuo (CEO) a entornos internacionales, no estadounidenses, sobre el nivel de sobre/insuficiente remuneración de los CEO en una muestra de empresas españolas.
Implicaciones prácticas
La remuneración de los CEO es susceptible de verse influenciada por variables extranjeras no estadounidenses. Una comprensión adecuada de estos factores puede contribuir a discutir polÃticas que equilibren el nivel de remuneración de los CEO en las grandes empresas públicas.
Objetivo
Explorar a relação entre estrangeirismo e remuneração de CEO.
Design/Metodologia
Combinamos observações transversais e de séries temporais analisadas com metodologia de dados em painel em uma amostra de 59 empresas listadas no Ãndice espanhol IBEX-35 entre 2006 e 2020.
Resultados
A propriedade internacional influencia o sub pagamento de CEO e as vendas no exterior influenciam o super pagamento de CEO.
Originalidade
Pesquisas sobre internacionalização e remuneração de CEO são escassas. Alguns estudos confirmam a ligação entre americanização e remuneração de executivos na Europa. No entanto, ainda não sabemos se o nÃvel de remuneração de CEO é influenciado pela exposição não americana. Para fazer isso, testamos o efeito da exposição da empresa - propriedade, vendas, conselho - e individual - CEO - a ambientes internacionais, não americanos, no nÃvel de super/sub pagamento de CEOs em uma amostra de empresas espanholas.
Implicações práticas
A remuneração de CEO é suscetÃvel a ser influenciada por variáveis estrangeiras não americanas. Uma compreensão adequada desses fatores pode contribuir para discutir polÃticas que equilibram o nÃvel de remuneração de CEO em grandes empresas públicas.
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Press reports have indicated that firms frequently underprice restricted stock and employee stock options. I test for underpricing of stock and options.
Abstract
Purpose
Press reports have indicated that firms frequently underprice restricted stock and employee stock options. I test for underpricing of stock and options.
Design/methodology/approach
I examined a sample of 5,333 private firm stock and option issuances between 1985 and 2017. I tested for underpricing using two approaches: assuming investors have no special market-timing ability and assuming instead they have perfect market-timing ability.
Findings
I find evidence of widespread stock and option underpricing by private firms before they go public reflecting large discounts that exceed reasonable compensation for lack of marketability. Unreported underpricing is more frequent in the last pre-IPO private equity transactions that offer the last opportunity to give such discounts before the stock is publicly traded, but the discounts are greater in the earlier pre-IPO transactions where unreported discounts are presumably tougher for the SEC to detect. Underpricing is still detected even when the actual DLOMs are tested against a benchmark that assumes investors have perfect market-timing ability.
Research limitations/implications
Firms frequently underprice restricted stock and employee stock options. Firms tend to underprice stock options more frequently than restricted stock, but restricted stock tends to be priced at deeper discounts when recipients are assumed not to have any special market-timing ability.
Practical implications
Private firms issue restricted stock and options as incentive compensation. Lowballing the valuation transfers wealth from outside stockholders to employees/insiders. Wealth transfers take place through the issuance of equity claims to employees/insiders before firms go public. I found that more than a quarter of the DLOMs exceed the theoretical maximum by, on average, between 16% (median) and 20% (mean). This finding raises two questions worthy of investigation. First, to what extent do the frequency and magnitude of DLOMs above the theoretical maximum depend on whether a board of directors obtains an independent appraisal of a stock’s fair market value? Second, if DLOMs above the theoretical maximum are observed even when the stock is independently appraised, how do appraisers justify such large DLOMs?
Social implications
The wealth transfers that take place through the issuance of equity claims to employees/insiders before firms go public benefit employees/insiders at the expense of outside shareholders.
Originality/value
My paper is the first to furnish evidence of widespread stock and option underpricing by private firms before they go public; demonstrate that the unreported underpricing is more frequent in the last pre-IPO private equity transactions that offer the last opportunity to give such discounts before the stock is publicly traded and show that the discounts are greater in the earlier pre-IPO transactions where unreported discounts are presumably tougher for the SEC to detect.
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Siddhartha Barman and Jitendra Mahakud
The purpose of this study is to examine the nexus between geopolitical risk, female CEOs and firm performance through a cross-country analysis.
Abstract
Purpose
The purpose of this study is to examine the nexus between geopolitical risk, female CEOs and firm performance through a cross-country analysis.
Design/methodology/approach
The study period ranges from 2014 to 2021, and the dataset uses an unbalanced panel of 4,955 companies across 50 nations comprising both developed and emerging economies. Our study has employed a fixed-effect panel regression model, to examine this issue. This analysis was supplemented with applying a dynamic panel technique, i.e. System generalized method of moments (SGMM), to address any endogeneity problems.
Findings
The study reveals that female CEOs positively impact firm performance, while geopolitical risks decrease it. Gender plays a significant role in this relationship, with firms with female executives tending to make conservative financial decisions amidst increased risks. The study also shows that geopolitical threats (GPRT) have a greater impact on female CEOs-firm performance relationship in developed nations.
Originality/value
This study is a new investigation that explores the intertwining relationship between geopolitical risk, female CEOs and firm performance across the countries.
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This paper studies the relationship between CEO pay-performance sensitivity and CEO pay for luck as well as the asymmetric benchmarking of CEO pay in which good luck is rewarded…
Abstract
Purpose
This paper studies the relationship between CEO pay-performance sensitivity and CEO pay for luck as well as the asymmetric benchmarking of CEO pay in which good luck is rewarded but bad luck is not penalized symmetrically. We further explore the impact of the regulatory changes on executive compensation taking effect in the 2000s on CEO pay for luck and asymmetry.
Design/methodology/approach
In this study, we examine the relationship between CEO pay-performance sensitivity and CEO pay for luck and the asymmetric benchmarking of CEO compensation. The sample consists of DJIA component companies over a 71-year period from 1950 to 2020. CEO pay-performance sensitivity is measured by both delta and Jensen-Murphy pay-performance sensitivity.
Findings
We find that an increase in CEO pay-performance sensitivity as measured by both delta and Jensen-Murphy pay-performance sensitivity leads to an increase in the degree of CEO pay for luck but tends to reduce the level of CEO pay for luck asymmetry. In addition, we find that the major pay-related regulatory changes in recent years have mitigated the degree of CEO pay for luck and pay asymmetry, in which CEO pay structure and the associated CEO pay-performance sensitivity are major mechanisms through which the regulatory changes take effect.
Research limitations/implications
Our findings provide empirical evidence supporting the argument that both optimal contracting and rent extraction should be considered as important determinants of CEO compensation.
Practical implications
When a firm designs the pay packages for its CEO to align CEO wealth to firm performance, CEO pay-performance sensitivity is expected to improve. However, the improved CEO PPS can also lead to an increased CEO pay for non-performance (Luck), which is an undesired outcome from the shareholder view. Therefore, a firm should thoroughly consider various advantages and disadvantages when compensating its top executives. Third, pay-related regulations have indeed achieved some intended outcomes such as the diminished pay for luck and asymmetry, but they also exacerbated the positive relationship between CEO pay-performance sensitivity and the asymmetric benchmarking of CEO pay. It seems that executive pay-related regulations cannot achieve perfect outcomes without side effects. Continuous reforms and regulations on corporate governance should be a dynamic process under various changing situations.
Originality/value
This study contributes to the literature on executive pay for luck and asymmetry in several ways. First, our study is among the few studies empirically testing the relationship between CEO pay-performance sensitivity and pay for luck and asymmetry. We find that CEO pay-performance sensitivity tends to increase the degree of CEO pay for luck but reduce the level of asymmetric benchmarking of CEO pay. These findings partly support the rent extraction theory grounded on the managerial power hypothesis and partly support the optimal contracting theory. Our findings confirm that the optimal contracting theory and the rent extraction theory are both important for explaining the practices and historical trends of CEO compensation.
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Muhammad Nurul Houqe, Solomon Opare and Muhammad Kaleem Zahir-Ul-Hassan
The purpose of this study is to examine the association between carbon emissions and earnings management (EM). This study also considers the effect of female CEOs on the…
Abstract
Purpose
The purpose of this study is to examine the association between carbon emissions and earnings management (EM). This study also considers the effect of female CEOs on the association between carbon emissions and EM.
Design/methodology/approach
This study uses the carbon disclosure project (CDP) for carbon emissions data, the Compustat database for financial information and the ExecuComp database for female CEOs. The empirical sample of this study consists of 1,692 firm-year observations in the USA that voluntarily participated in the CDP survey from 2007 to 2015. Regression analysis and robustness tests are conducted for this study and both accrual and real EM are considered.
Findings
This study provides evidence that firms with female CEOs who voluntarily disclose their carbon emissions information engage in less real EM. Thus, the presence of female CEOs moderates the association between carbon emissions and EM. This study/paper also finds a positive association between carbon emissions and real EM, although there is an insignificant association between carbon emissions and accruals EM.
Practical implications
The association between carbon emissions and EM has important implications for investors, regulators and policymakers. This study suggests that policymakers should improve the conditions that promote inclusion of females in the top management positions to constrain EM.
Originality/value
This study focuses on the USA, which is one of the major contributors to carbon emissions in the world. The presence of female CEOs moderates the association between carbon emissions and EM and firms with female CEOs show a greater impact on EM.
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Shiyang Hu, Chunyan Wei, Rui Xue, Liang Yin and Bo Zhu
This paper examines the effect of board reforms on managerial risk-taking incentive provision in state-owned enterprises (SOEs) whose managers are undue risk-averse.
Abstract
Purpose
This paper examines the effect of board reforms on managerial risk-taking incentive provision in state-owned enterprises (SOEs) whose managers are undue risk-averse.
Design/methodology/approach
We use the staggered implementation of board reforms in Chinese central government-controlled state-owned enterprises (CSOEs) as an exogenous shock to board governance. We collect data on board reforms for a set of pilot CSOEs during the period 2005 to 2020 from the State-owned Assets Supervision and Administration Commission (SASAC) website by hand. We use a generalized difference-in-difference (DID) design to test the effect of staggered board reform adoption on managerial risk-taking incentive provision.
Findings
We find a positive relationship between board reforms and risk-taking inventive provision, i.e. pay-performance sensitivity, promotion-performance sensitivity and performance target difficulty. The documented relationship is stronger when the value of risk-taking is higher. We also find that board reforms lead to greater risky but value-enhancing investments and that managerial risk-taking incentive provision acts as an important channel through which board reforms improve value-enhancing risk-taking.
Originality/value
Our findings suggest that board reforms that improve board governance are effective in addressing risk-related agency conflicts in emerging markets. The findings also highlight the importance of managerial risk-taking incentive provision in inducing risky but value-enhancing investments.
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