Search results

This paper aims to examine how compensation committees perceive audit quality as indicated by audit firm tenure. Using the contracting weight attached to earnings and cash flows in chief executive officer (CEO) compensation as proxy for the compensation committee’s perception of audit quality, the study examines whether compensation committees perceive performance metric informativeness as being affected by auditor tenure.

The paper regresses CEO cash compensation on accounting-based performance metrics and on interactions between auditor tenure and accounting-based performance metrics while controlling for other factors previously shown to affect CEO pay. Auditor tenure is measured using continuous and dichotomous variables.

Auditor tenure is associated with a reduced (positive) weight on earnings (operating cash flows), which suggests lower perceived audit quality as tenure lengthens consistent with the auditor closeness argument. This relation is asymmetric, i.e. the negative effect of longer auditor tenure on incentive contracting is more pronounced for positive earnings. The results are robust to using CEO total compensation as the compensation measure, as well as using level and change specifications.

The inability to control for audit partner tenure in assessing the effect of audit firm tenure on incentive contracting and the potential endogeneity between auditor tenure choice and incentive contracting are the main limitations of this study. Given the lack of information on US audit partner tenure, the study could not control for the audit partner tenure issue. However, the study has attempted to mitigate the endogeneity issue by using a Heckman selection model that includes in the first-stage a regression of auditor tenure on various firm, performance measure and CEO-related governance characteristics, based on existing models (Li et al., 2010).

Compensation committees view auditor tenure as an indicator of accounting quality in setting CEO pay. Further, long auditor tenure is perceived as detrimental to financial reporting integrity, particularly when earnings numbers suggest positive managerial performance and innovations.

This study provides empirical evidence that auditor tenure matters in setting executive pay. Further, this study shows evidence on the link between auditor tenure and audit quality from an internal user’s perspective. Prior studies have focused either on external users (investors, creditors) or on the preparer (using measures such as discretionary accruals or meet/beat analysts’ forecasts or forecast guidance).

The purpose of this paper is to analyze the effects of private investor's fair preference on the governmental compensation mechanism based on the uncertainty of income for the public-private-partnership (PPP) project.

Based on the governmental dilemma for the compensation of PPP project, a generalized compensation contract is designed by the combination of compensation before the event and compensation after the event. Then the private investor's claimed concession profit is taken as its fair reference point according to the idea of the BO model, and its fair utility function is established by improving the FS model. Thus the master-slave counter measure game is applied to conduct the behavior modeling for the governmental compensation contract design.

By analyzing the model given in this paper, some conclusions are obtained. First, the governmental optimal compensation contract is fair incentive for the private investor. Second, the private fair preference is not intuitively positive or negative related to the social efficiency of compensation. Only under some given conditions, the correlation will show the consistent effect. Third, the private fair behavior’s impact on the efficiency of compensation will become lower and lower as the social cost of compensation reduces. Fourth, the governmental effective compensation scheme should be carried out based on the different comparison scene of the private claimed portfolio profit and the expected revenue for the project.

This study analyzes the effects of private investor's fair preference on the validity of governmental generalized compensation contract of the PPP project for the first time; and the governmental generalized compensation contract designed in this study is a pioneering and exploratory attempt.

The purpose of this paper is to develop compensation mechanisms against risks factors that impact private party’s costs in concession-based projects as a basis for minimizing failure rate of concession contracts.

The study extended earlier work on the factors that impact private party’s costs in concession-based projects by developing compensation mechanisms against the risks factors. It commenced with semi-structured face-to-face interviews which were launched with different stakeholders organizations that had been involved in PPP contracts in the Southwestern Nigeria. Responses from the interview were analyzed using interpretative phenomenal analysis via ATLAS.ti6/7. The mechanisms identified from literature review were assessed through structured questionnaire which were administered on professionals selected from governmental-based organizations (ministries, agencies, corporations/parastatals, etc.), private developers/concessionaires, law firms, banks among others, using the respondent-driven sampling technique. The robustness of the quantitative data was achieved by including the initial respondents to the interview in the questionnaire survey. The quantitative data were analyzed using percentile for better understanding of the flexibility between “most” and “more” preferred mechanisms. The criterion for the selection of appropriate mechanism(s) for the factors was based on minimum average of 20.0 percent (the ratio of maximum percentage (100 percent) of the respondents to total number of variables) suggesting the five identified mechanisms. The results in both cases of qualitative and quantitative assessments were compared. Based on the convergences of the findings, preferred compensation mechanisms were developed against concession contract risk factors.

Options of mechanisms were developed against specific investment risks that are consequent to the defaults of the public party in PPP contracts. The findings indicate that the mechanisms in extant literature with respect to administration of traditional models are relevant for PPPs. The study, however, identified new concepts, including “compensative” “zero compensation,” “equitable sharing” and “adjustment of concession period,” which are suitable in specific cases of PPP contracts.

The study contributes to the body of knowledge on mechanisms for improving PPP project performance. Moreover, insights were provided on mechanisms that satisfy private investor in case of specific risk factors investigated. The findings are therefore expected to guide private party in the preparation of concession contract package that minimizes investments risks and thereby attracting more private investors both from local and international environments. The findings of the study would also contribute to the body of information for documenting standard conditions of concession contract in Nigeria.

Studies on critical performance factors on PPP were extended by developing compensation mechanisms against the investment risks that impact private party’s cost.

Based on the theory of “optimal contracting approach” and “the managerial power approach”, this paper aims to investigate whether senior executives of listed companies in China make use of their power to gain their own private benefits. The paper also compares compensation contracts between state- and private-owned enterprises to test whether there is a significant difference between senior executives from different ownership types of enterprises in terms of compensation contracts.

The paper raises four hypotheses based on the theories of “company agency”, “optimal contracting approach” and “managerial power approach”. After that, 5,680 A-share-listed companies of stock market in Shanghai and in Shenzhen Stock Market from 2008 to 2012 were taken as research samples to conduct a series of research analysis, including t-test, reliability analysis and regression analysis, with the help of SPSS 18.0.

The senior executives of listed companies in China could make use of their power to increase their own salary to gain power pay and, at the same time, company performance, company size and other factors that are important to influence the executive compensation. This paper further argues that senior executives of private-owned listed companies are more likely to use their power to obtain power pay and increase their own compensation. Additionally, the agency costs of Chinese listed companies are negatively related to the performance pay of senior executives, whereas there is no obvious negative correlation with the power pay of senior executives.

This paper takes multiple, in-depth approaches to study the relationship among managerial power, agency cost and executive compensation and to find out the differences in compensation contracts of senior executives between private-owned listed companies and state-owned companies. It also provides necessary suggestions to ensure the interests of stockholders, such as: optimizing the management structure of listed companies; improving the transparence of information disclosure of listed companies; establishing effective mechanism of incentive and constraint; and improving and standardizing the market of professional managers.

The compensation contract of senior executives in China is critical to enhance enterprises’ performance, and it will become an important factor that will facilitate the interests of stockholders and management. However, this paper argues that some phenomena of over-payment of senior executives in listed companies cannot be explained by the theory of “optimal contracting approach”, but it is necessary and important to compare the differences of compensation contract of senior executives between private-owned listed companies and state-owned companies. A series of findings are proposed in this paper.

This paper made use of a principal analysis to extract the main factors that could represent the managerial power from different angles. In addition, this paper also compared the differences between compensation contracts of senior executives between private-owned listed companies and state-owned companies. Additionally, in this paper, the compensation of senior executives was divided into “power compensation” and “performance compensation”, which were used to test the relationship with the management cost of companies.

This paper aims to mainly investigate the role of trust, which is an important informal system, in executive compensation incentives.

Using the data of Chinese A-share private enterprises from 2003 to 2014, the paper estimates the effect that trust has on executive compensation incentives.

Results indicate that trust can significantly enhance the effectiveness of executive compensation incentives. Furthermore, the better the regional trust environment in which companies are located, the more pronounced the effect is. In particular, the effect of trust on executive compensation incentives is only significant when the formal legal system is immature. As companies continue to grow and develop and the formal system becomes perfect, the role of trust weakens. The formal system, including the corporate governance mechanism and perfect legislation, then becomes the key to promoting executive compensation incentives.

This paper provides evidence of the significance of both informal and formal systems. It not only emphasises the important role that the informal system has played in “the mystery of China’s economic growth” but also supports the “ruling the country by law” strategy for the sustainable development of China’s economy.

This paper reveals the relationship between the formal and informal systems, which provides a new perspective on and empirical evidence for the determinants of executive compensation incentives, and it also finds an explanation for the rapid growth of China’s economic development.

Extensively public concern on “Huge Executive Compensation” makes it urgent to investigate the reasonability of high executive compensation. The purpose of this paper is to explore the effectiveness of compensation contracting based on the specific responsibility of executives. More specifically, this paper is to examine whether high compensation is helpful to mitigate agency problems.

Considering that board secretaries of listed companies are responsible for information disclosure in China, this paper examines the effect of board secretaries’ excess compensation on firms’ disclosure quality using listed company data from 2007 to 2015. The first measure of disclosure quality is based on the disclosure violation behavior of firms, and the second is KV value that represents the extent to which the investors relay on the stock trading volume. To provide additional confidence that the findings are robust, this paper further conducts two indirect tests based on rumors and cost of equity capital.

The results show that board secretaries’ excess compensation is negatively associated with the probability of information disclosure violation and also negatively associated with firms’ KV value, suggesting firms that pay high compensation to their information providers are more likely to provide high-quality disclosures. Besides, this paper further finds that board secretaries’ excess compensation is negatively related to the incidence of rumors, the number of rumors incurred or the cost of equity capital.

Overall, the findings provide support to the efficient contracting of executive compensation, which implies that highly paid board secretaries would be better information providers than those poorly paid.

This paper provides empirical evidence that firms’ disclosure quality can be improved by modifying the compensation contract of information providers. This may indicate a new way to improve the quality of disclosures, so as to mitigate the agency problem.

In spite of the public criticism on executive excess compensation, the high compensation is not always a signal of manipulation, collusion and self-interest. It also can be a signal of individual talents and great efforts. Board secretaries are worth to be highly paid if they can improve firms’ disclosures, thereby reducing the incidence of rumors and reducing the cost of equity capital.

This paper is the first research to examine the effectiveness of compensation contracting based on information providers’ disclosure responsibility in the Chinese context. It documents a positive relation between board secretaries’ excess compensation and corporate disclosure quality.

Many argue that the design of compensation contracts for public company chief executive officers (CEOs) is often not guided by a goal of value maximization. Yet, there is limited direct empirical evidence on the negative consequences of the proposed inefficient contracting between shareholders and CEOs. Using data on CEO bonus contracts of the S&P 500 firms, we investigate potential firm performance implications of the use of qualitative criteria such as leadership and mentoring in those contracts. We maintain that unlike quantitative criteria, qualitative criteria are difficult to define and measure on an objective basis, possibly resulting in an inefficient and biased incentive structure. Twenty-five percent of the sample observations have CEO bonus contracts that include a qualitative criterion for bonus payment determination. Our results show that employee productivity, asset productivity, capital expenditures, and future abnormal stock returns are lower for firms that use a qualitative criterion in CEO bonus contracts than those that do not. Further, contrary to the argument in prior literature that earnings management decreases with the use of subjective performance indicators in incentive contracts, we find that income-increasing accruals are actually higher when the CEO bonus contract includes a qualitative criterion. We recommend that compensation committees set concrete, measurable performance goals for CEOs, providing CEOs with better guidance and helping improve their corporate decision making.

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.

This paper seeks to analyze how compensation framing influences the risk‐taking behavior of the firm's chief executive officer (CEO), and the mediating role played by risk bearing.

The study employs a sample of 108 US firms that issued an initial public offering in 1993, 1994 and 1995. Data from a survey filled out by the CEO of the firm are completed with secondary information. A structural equation model is estimated which explicitly considers the mediating effect of risk bearing on the compensation framing‐risk taking relationship.

The analyses indicate that while the performance targets included in the CEO's compensation contract indirectly influence the riskiness of the CEO's strategic decisions through its influence on the employment risk component of executive risk bearing, the level of compensation relative to peers does not. It shows that not all reference points are equally relevant in determining the CEO's willingness to take risk, nor do all the elements of risk bearing play the same role in that partial mediation.

The paper provides a refinement of previous work on modelling the risk‐taking behavior of managers.

The paper provides a guideline to think about the behavioral consequences of the pay level in the market for executives and the performance targets included in the compensation contracts.

The paper proposes and tests a model on how different reference points used to frame compensation influence CEO risk taking. It also provides the first test of a central proposition of the behavioral agency model: risk bearing partially mediates the influence of compensation framing on risk taking.

Previous empirical research interprets results from pay‐performance studies in the light of either agency theory or managerial power theory. This paper aims to directly estimate the relationship between CEO power, and compensation structure, level, and performance‐sensitivity. In doing so, it seeks to test the crucial assumption in managerial power theory according to which more powerful CEOs are able to enjoy higher and less performance‐sensitive compensation.

The hypotheses are tested on a detailed dataset, covering compensation for CEOs in virtually all Dutch stock‐listed companies, for the period 2002‐2006. The paper tests whether the findings are robust against different lag structures and firm size classes.

In general, most of the multi‐dimensional measures of power do not appear to have a strong effect on compensation, with one exception: non‐Dutch CEOs receive more variable compensation, and receive higher and less performance‐sensitive pay than their Dutch colleagues.

This paper contributes to the extant CEO compensation literature, which to date relies on interpretations of findings in pay‐for‐performance studies to argue for either agency or managerial power theory. The direct test of the relationship between power and compensation emphasises the importance of one dimension of a multidimensional power construct. As strong effects of performance of compensation are not found either, the paper suggests that the bipolar debate be extended to include other explanations of compensation arrangements.