Search results

Agency problems are more severe for multinational corporations (MNCs) and multinational enterprises compared to their domestic counterparts. As companies develop diversified operations, their managers face more challenges. An incentive compensation structure has been designed to align the benefits of managers with those of shareholders. Additionally, corporate social responsibility (CSR) has become increasingly crucial for companies. MNCs must gain the trust of more investors to improve their corporate reputation and financial performance. CSR enables MNCs with a high sense of social responsibility to expand their investor base, reduce perceived risks, and decrease information asymmetry. Our empirical findings reveal that Taiwanese MNCs can enhance their performance by implementing cash-based compensation and pursuing CSR activities.

The chapter investigates three channels through which private benefits are hypothesized to be extracted in dual class companies: excess executive compensation, excess capital expenditures and excess cash holdings.

With a propensity score matched sample of S&P 1500 dual class and single class companies with concentrated control, the chapter analyzes the relationship between the valuation discount of dual class companies and measures of excess executive compensation, excess capital expenditure and excess cash holdings.

Executives in dual class firms earn greater compensation relative to their counterparts in single class firms. This excess compensation is more pronounced when the executive is a family member. The value of dual class shares is discounted most when cash holdings and executive compensation of dual class are excessive. Excess compensation is highest for executives who are family members of dual class companies. The dual class discount is not related to excess capital expenditures.

The research shows that the discount in the value of dual class shares in relation to the value of closely controlled single class company shares is directly related to the channels through which controlling shareholder-managers can extract private benefits.

The purpose of this study is to conduct a comparative analysis of the economic determinants of the compensation for chief executive officers (CEOs) between the pre- and post-financial crisis periods. To conduct the comparative analysis, the authors consider five years before and five years after the financial crisis of 2008. The authors use the data from the US financial service institutions and run separate regressions for the pre- and post-crisis periods to check if there is any significant difference in the economic determinants of executive compensation before and after the financial crisis. The authors find that total compensation and its incentive components decreased significantly in the post-crisis period. In the pre-crisis period, total compensation was determined by stock performance, accounting profit, growth, and leverage, whereas in the post-crisis period stock returns and leverage are the major factors influencing total compensation. The authors also find that firms’ leverage negatively influences the sensitivity of the pay for performance, but the influence of leverage on pay for performance is weaker in the post-crisis period. Our research is significant in the context of the US economy, the regulatory reforms of financial institutions, and the perspectives of the executive compensations. This is the first study that compares the relationship between compensation and firm performance over the pre- and post-crisis periods. It is an explicit attempt to develop a theoretical understanding of the compensation/performance relationship for the financial industry, which is blamed for the financial crisis and is affected by the Dodd–Frank regulation after the crisis.

We document three new facts about gender differences in executive compensation. First, female executives receive lower share of incentive pay in total compensation relative to males. This difference accounts for 93% of the gender gap in total pay. Second, the compensation of female executives displays lower pay-performance sensitivity. A $1 million dollar increase in firm value generates a $17,150 increase in firm-specific wealth for male executives and a $1,670 increase for females. Third, female executives are more exposed to bad firm performance and less exposed to good firm performance relative to male executives. We find no link between firm performance and the gender of top executives. We discuss evidence on differences in preferences and the cost of managerial effort by gender and examine the resulting predictions for the structure of compensation. We consider two paradigms for the pay-setting process, the efficient contracting model and the “managerial power” or skimming view. The efficient contracting model can explain the first two facts. Only the skimming view is consistent with the third fact. This suggests that the gender differentials in executive compensation may be inefficient.

We investigate the impact of the creation of a new incentive structure for CEOs resulting from firms introducing equity-based compensation (EBC) as a means of paying top executives on policy decisions. Contrasting a firm’s stock and operating performance in the period the CEO is compensated with EBC (EBC period) and the period when EBC is not a component of the same executive’s pay (No EBC period) leads us to conclude that awarding stock options and restricted shares to executives is not associated with improved firm performance. However, firms initiate EBC after superior performance suggesting that CEOs are awarded compensation in this form as a reward for past performance. Firms have higher unsystematic and total risk levels in the EBC period suggesting EBC influences CEOs’ risk-taking behavior and reduces agency costs arising from managerial risk aversion. While there is no change in R&D expenses and cash ratios there is a decrease in capital expenditures in the EBC period, which is consistent with reduced overinvestment agency costs. Finally, leverage and payout ratios are similar in both periods implying that firms’ financing policy is not influenced by changes in CEOs’ compensation structure.

This paper investigates the impact of the Sarbanes-Oxley (SOX) Act on top executive compensation and empirically examines the changes in relationship between top executive compensation and corporate performance expectations.

A theoretical framework is presented based on previous literature and testable hypotheses are proposed. The Pearson correlation is calculated to examine the inter-correlation among various measures of performance and compensation variables. The Ordinary Least Square (OLS) Regression was conducted to test the hypotheses.

The results show that in the pre-SOX period CEO compensation is strongly related to market-based performance measures while in the post-SOX period accounting-based performance measures showed a significant positive relationship with CEO compensation. The results confirm the impact of the SOX Act where it requires stronger internal control systems and reliable financial reporting. The board relies heavily on accounting-based performance measures in determining top executive compensation in the post-SOX period.

This paper shows the composition and level of CEO compensation have changed following the SOX Act and provide important evidence in explaining changes in the relationship between top executive compensation and firm performance expectation in the post-SOX period.

The change in CEO pay after their firms make large corporate investments is examined. Whether the change in CEO pay is a beneficial practice or harmful practice to firms is investigated.

A sample of firms that make large corporate investments is identified. For this sample, we identify the change in CEO pay before and after the investment, and we also measure the pay-for-size sensitivity of these investing firms.

For firms that make large corporate investments, CEOs get significantly more option grants when their firms’ stock returns are negative after the investments and these investing CEOs get more option grants than noninvesting CEOs.

The present study suggests that firms may have to increase CEO pay after large corporate investments to encourage investment. However, the results may also be consistent with an agency cost explanation. Future research should try to distinguish between the two explanations.

The study reveals a potential way to prevent CEOs from underinvesting.

The study provides important insights to shareholders on how to encourage CEOs to get their firms to invest, and on how to view CEO pay increases after their firms invest.

Internal Revenue Code §162(m), which applies to public corporations, was designed to reduce executive compensation and strengthen its relation to performance. This article examines the effectiveness of the code section. While the results reflect a continual increase in the compensation of a group of key executives for the years reviewed, evidence is found in support of the performance-based objectives of §162(m). Findings indicate a shift away from salary and toward bonus payments over the time period examined. Further, the link between compensation and performance appears to have strengthened slightly after the enactment of §162(m).

Purpose – This study explores the probability of expropriation of minority shareholders by controlling shareholders in the form of CEO compensation under an imperfect governance institution by using a novel Chinese dataset over 2001–2010.

Design/methodology/approach – We use a direct method to gauge controlling shareholders’ tunneling and expropriation of minority shareholders, and we present a simple model to link corporate governance and the degree of entrenchment by the largest shareholder. We use both Logit and Probit models to predict the likelihood of tunneling and use two-stage least square (2SLS) regression to address the endogeneity issues.

Findings – There are significant deterioration effects between controlling shareholder's tunneling and firm performance. Firms with more tunneling activities typically have larger controlling ownership, greater evidence of state control, less balance of power among large shareholders, and weaker board characteristics.

Research limitations/implications – The positive relationship between controlling shareholders’ tunneling and executive compensation implies that the controlling shareholder might divert personal benefits from the public firms at the expense of minority shareholders.

Originality/value – We focus on the effects of corporate governance restructuring on executive compensation and controlling shareholders’ tunneling in the Chinese context, and we also investigate whether these effects are stronger with the involvement of state ownership. We empirically address the issues between executive compensation and expropriation of minority shareholders.

This paper presents estimates of total personal income for every U.S state in 1880, 1890, 1900, and 1910. The series includes new figures for 1890 and 1910, and revisions of Richard Easterlin's (1960) figures for 1880 and 1900 based on recent economic history research. The new estimates allow better examination of U.S. interregional income differences and cyclical behavior of U.S. states’ total personal income.