Executive compensation disclosure, ownership concentration and dual-class firms: An analysis of Swedish data

Katarzyna Cieslak,Mattias Hamberg,Derya Vural

doi:10.1016/j.intaccaudtax.2021.100429

Abstract

We study how executive compensation disclosure (ECD) is affected by the economic incentives of owners and managers in a Swedish setting where agency conflicts are not so much between managers and owners, but between controlling and non-controlling owners. In our sample, control is often enhanced through mechanisms such as dual share classes. The analysis relies on detailed hand-collected ECD data from 2837 annual reports. As expected, disclosure decreases with ownership concentration and the owner’s excess voting rights. In Sweden, overpaid Chief Executive Offices (CEOs) improve ECD quality, but this is not the case when the controlling owner has excess control rights. This suggests that when managers have a bond with controlling owners, ECD is part of the agency problem between controlling and non-controlling owners, and executive compensation plays a different role than in previously studied Anglo-Saxon settings.

Highlights

Managers in publicly listed firms have better information than owners about the firm’s activities, and well-structured executive compensation systems reduce agency problems caused by information asymmetries
In contrast to market solutions, disclosure regulation should reduce total costs and create positive externalities (Healy & Palepu, 2001; Leuz & Wysocki, 2016). Such benefits might be difficult to obtain when it comes to executive compensation disclosure (ECD) as compensation is affected by complex relations between managers, controlling owners, and non-controlling owners
Conclusions from studies made in Anglo-Saxon institutional settings might not be universal as managers’ bargaining power can be constrained both by laws and actions taken by owners of the firm

Summary

Introduction

Managers in publicly listed firms have better information than owners about the firm’s activities, and well-structured executive compensation systems reduce agency problems caused by information asymmetries. In contrast to market solutions, disclosure regulation should reduce total costs and create positive externalities (Healy & Palepu, 2001; Leuz & Wysocki, 2016). Such benefits might be difficult to obtain when it comes to executive compensation disclosure (ECD) as compensation is affected by complex relations between managers, controlling owners, and non-controlling owners. Our overall objective is to further the understanding of ECD in an institutional setting with controlling owners

Methods

Results

Conclusion