Abstract
Using the percentage of outside directors as a proxy for board monitoring, we find empirical evidence that board monitoring and CEO pay–performance sensitivity (PPS) are substitutes. In 2002, major US exchanges began to require that the boards of listed firms have more than 50% outside directors. In the case of firms affected by this requirement, their CEO PPS decreased significantly because of a reduction of CEO ownership relative to the control group, especially in the case of firms in which outside directors are better informed. We find that this substitution in governance mechanisms did not change overall firm value.
Full Text
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call