Corporate governance, restricted stock awards, and IRC Section 83(b) election

Abstract

PurposeThis study sets out to examine whether CEOs who hold the dual position of chairperson of the board exert increased influence over the board, resulting in compensation contracts more favorable to the CEO than to the firm.Design/methodology/approachCorrelation analysis is used to test the association between the dependent variable and the independent variables. Logistic regression is used to predict the probability of permitting Section 83(b) election in the context of CEO duality, CEO tenure, tax‐paying status and size of the firm.FindingsThe results show that the presence of CEO duality does not influence the likelihood of permitting a Section 83(b) election. However, the tenure of the CEO significantly increases the likelihood of permitting a Section 83(b) election.Research limitations/implicationsThis study is limited in the sense that it only examines the year 2004 and the results may be unique to that year. An extension of this study to include additional years of observations is warranted.Practical implicationsShareholder concerns about CEO duality appear to be unfounded. However, shareholders may consider limiting CEO tenure to lessen the likelihood of CEOs acting in their own best interest at the expense of the firm.Originality/valueThis study contributes to the literature by finding that attributes of the CEO may influence the form of equity compensation that is awarded to the CEO. These attributes may serve the self‐interest of the CEO and not enhance firm value to the shareholder.