Higher CEO Research Articles

Seeking justice: Inequitable management compensation and employee whistleblowing

Prompted by high pay disparity within firms, many employees have raised concerns about the equity of management compensation. This study examines the relation between employees’ perceptions of inequitable management compensation and their whistleblowing behavior. We expect that when employees feel more strongly that management compensation is inequitable and unjust, they are more motivated to blow the whistle on potential management misconduct. Consistent with this expectation, we find that firms with higher CEO pay ratios are more likely to experience employee whistleblowing of alleged misconduct in the following year. This positive association is stronger when employees are more likely to perceive a high CEO pay ratio as being unjust. We also provide several tests to mitigate concerns about alternative explanations based on corporate culture or underlying fraud and to support the assumptions underlying our arguments. In addition, our results are robust to alternative measures of within-firm pay disparity. Overall, our findings identify potentially positive aspects of high pay disparity within a firm because its employees are more motivated to monitor management through whistleblowing.

CEO power and risk taking: evidence from European banks mergers and acquisitions

PurposeThis study investigates the relationship between CEO power and the risk profile (RP) of acquiring banks through mergers and acquisitions (M&A) transactions.Design/methodology/approachThe analysis is based on 214 transactions between 2010 and 2022 involving European Union-based acquirers. To assess the impact of M&A on the acquiring bank’s RP, we compare changes in the acquirer’s RP to control banks. We use linear regression with two-stage least squares instrumental variables (2SLS-IV) to examine the effect of CEO power on changes in merger-related risk.FindingsThe findings suggest that CEO power reduces the RP of the acquiring bank. Specifically, CEOs who hold both the CEO and board chair positions tend to take fewer risks. Additionally, CEOs with high ownership, CEO pay and extensive experience (measured by tenure and acquisition experience) decrease the RP. However, prestige power is positively correlated with an increase in RPs.Practical implicationsThis research examines CEO influence on bank risk post-mergers, providing insights into governance, risk and strategic choices. The findings can guide banks in CEO selection and governance to mitigate M&A risks, improving risk management and decision-making in the financial sector.Originality/valueThis study is the first empirical investigation introducing diverse executive power metrics to analyze the link between executive power and risk-taking in the European banking sector, with a specific emphasis on the impact on M&A as critical investment choices.

CEO compensation and bank’s performance following bank-rescue

PurposeThis paper examines the effect of restrictions on executive pay and high CEOs’ compensation on bank performance following the “2008 UK bank rescue policy”.Design/methodology/approachUsing the difference-in-difference estimation technique we assess the relationship between executive compensation and financial performance of rescued banks relative to non-rescued banks over the period 1999–2019.FindingsOur main finding indicates that the relationship between executive compensation and financial performance declines in rescued banks relative to non-rescued banks. Further, we document that performance continues to deteriorate in rescued banks relative to non-rescued banks. Our results are robust to different estimation techniques.Originality/valueThis study contributes to the literature that examines the efficacy of government bailouts during the 2008 crisis. To the best of the author’s knowledge, this study is among the first to examine the long-term implications of bank rescue and pay restrictions on executive compensation and performance post–rescue.

CEO pay ratio versus financial performance in Polish public companies

In this paper, we aim to investigate the relationship between CEO pay ratio and corporate financial performance in Polish public companies. Using a sample of 259 companies listed on the Warsaw Stock Exchange, we demonstrate that links between the pay gap and accounting measures of performance differ from market ones. Our findings indicate a negative correlation between CEO pay ratio and return on sales. This implies that companies pay executives less during periods of high profitability, possibly to avoid the negative impact of excessive pay on firm performance. We also discover that the pay gap, measured by CEO pay ratio, is positively linked with Tobin’s Q and annual stock returns. A high CEO pay ratio signals strong incentives for top executives to perform, potentially leading to better strategic decisions and, consequently, higher Tobin’s Q ratios and annual stock returns.

Corporate social responsibility and labor investment efficiency: evidence from China

PurposeWe expect to provide a complete theoretical framework and large sample evidence on the impact of corporate social responsibility (CSR) on the efficiency of labor investment. We also hope to provide micro-evidence based on labor investment behavior for the two-sided impact of corporate CSR behavior.Design/methodology/approachThis paper measures labor investment efficiency by estimating the difference between actual and expected net hiring of enterprises. CSR is measured on the basis of the CSR score of Chinese listed companies published by Hexun.com. A regression model is constructed to analyze the relationship between CSR and labor investment efficiency. Possible endogeneity problems are controlled by lagging independent variables, propensity score matching method and difference-in-difference method.FindingsResults show that CSR can improve labor investment efficiency by reducing over-hiring and under-hiring in emerging markets. The existence of the mediating effect of agency cost, information disclosure quality and employment fluctuation confirms that CSR improves labor investment efficiency through two mechanisms of corporate governance and labor market friction. The improvement effect of CSR on labor investment efficiency is more significant in non-state-owned, high CEO shareholding ratio and high-average urban wage enterprises.Originality/valueIn conclusion, our study is an important supplement to the existing research on the factors affecting labor investment efficiency. Our research conclusions will be helpful for enterprises in developing countries or enterprises in labor-intensive industries to improve labor investment inefficiency. The conclusion of the mechanism analysis in this paper provides more complete and reliable microscopic evidence for accurately identifying the specific path of CSR's impact on labor investment efficiency. This paper verifies the positive impact of CSR from the perspective of labor investment efficiency in the context of a developing country, which provides evidence for the theoretical conflicts related to CSR based on the effectiveness of enterprise labor investment decisions.

Cybersecurity and executive compensation: Can inside debt-induced risk aversion improve cyber risk management effectiveness?

This study contributes to the emerging literature on the determinants and the consequences of cyberattacks by examining the impact of inside debt compensation on a firm's likelihood of experiencing a cyberattack and on attacked firms' cash holdings, R&D investments, and asset tangibility. We provide compelling evidence that inside debt compensation reduces the probability of experiencing a cyberattack. Furthermore, we document that high inside debt CEOs reduce their firm's cash holdings while they increase R&D investments and asset tangibility once their firms experience a hacking incident. These effects persist for three years after the attack. Our results are robust to alternative measurements of inside debt compensation and after accounting for potential sample selection and endogeneity concerns. Our findings underscore the importance of inside debt compensation as a governance mechanism that alleviates inefficiencies related to cybersecurity investments.

CEO power, corporate risk management, and dividends: disentangling CEO managerial ability from entrenchment

We contribute to the literature on dividend policy by considering two largely ignored, yet important factors, namely CEO power and corporate risk management. We first disentangle CEO managerial ability from entrenchment - the two sources of leadership autonomy that are not normally distinguished in prior literature. Using UK (re)insurance data that allows us to objectively and reliably quantify risk management and to identify powerful stakeholders with monitoring incentives (e.g., shareholders and regulatory body), we find that risk management enables entrenched CEOs to increase dividends to avoid monitoring by shareholders without compromising financial resilience and increasing the risk of regulatory scrutiny. Further, we neither find the degree of CEO managerial ability nor its interaction with risk management to be related to dividends, suggesting that the competing incentives for talented CEOs to pay higher/lower level of dividends cancel out in cross-sectional tests. Nonetheless, we find that the signalling effects of dividends for future accounting earnings only exist in insurers with high ability CEOs. This is consistent with the view that talented CEOs are able to generate sustainable earnings, and when they choose to pay (more) dividends, they do so to externally signal their managerial ability.

Precautionary motive or private benefit motive for holding cash: Evidence from CEO ownership

This study examines how CEO ownership affects the motivation of firms to hold cash. We document a monotonic and positive relationship between CEO ownership and cash holdings. The effect is more pronounced for firms with higher firm-specific risk and larger external financing costs, suggesting that CEO ownership encourages firms to hold more cash as precautionary savings. However, we find no evidence that CEO ownership leads to cash hoarding in firms with weak corporate governance. Moreover, we show that firms with high CEO ownership and excess cash holdings have more capital expenditures and R&D expenses but do not have higher dividend payments and share repurchases. Nonetheless, shareholders’ perceived value of cash increases with CEO ownership, indicating that shareholders place a positive value on high levels of cash holdings associated with CEO ownership in the context of growing investment prospects. Overall, our findings support the notion that firm ownership aligns the interests of CEOs and shareholders, rather than encouraging managers to extract private benefits through hoarding cash.

A path towards enterprise environmental performance improvement: How does CEO green experience matter?

AbstractNudging the amelioration of enterprise environmental performance is the micro‐foundation for effectively enhancing resource utilization and realizing sustainable development. Based on the upper echelons theory, the characteristics and previous experiences of managers determine their strategic choices and then affect the behavior of enterprises at the whole social layer. Nevertheless, the literature concerning the effect of CEO green experience on enterprise environmental performance is void. To bridge this gap, this paper uses the data of China's A‐share listed enterprises from 2010 to 2021 to empirically investigate the direct impact, influence mechanisms, and heterogeneities of CEO green experience on enterprise environmental performance. The study finds that CEO green experience can significantly promote the improvement of enterprise environmental performance. Based on the main effect, to exploring potential mechanisms behind the conclusion, we figure that environmental ethics commitment, environmental protection investment, and green technology innovation are the core mechanism approaches during the process of CEO green experience affects environmental performance. Heterogeneity analysis of CEO characteristics demonstrates that the green experience of female CEOs, older CEOs, and high educated CEOs both have a pronounced effect on ameliorating enterprise environmental performance. Furthermore, the positive effect of CEO green experience on environmental performance is more prominent in non‐state‐owned enterprises, heavily polluting industries, and regions with high environmental protection pressure. Besides providing an effective supplement for the research on managers and environmental performance, this paper also generates micro‐empirical support for government departments to formulate and optimize environmental policies.

Proxy solicitation, ownership structure, and bank cash dividends

The system of proxy solicitation is designed to alleviate the agency cost. The cash dividend policy involves the agency problem, which is particularly important in the banking sector. This study examines how proxy solicitation and ownership structure affect bank cash dividends. We find proxy solicitation is positively correlated with dividends, while the interactions between proxy solicitation and ownership structure negatively affect dividends. These results imply proxy statements display shareholder activism to some extent. However, when banks with high CEO, director, and government ownership solicit proxies as a means to smoothly reduce dividends, proxy solicitation becomes inefficient in shareholder activism.

CEO Skills in Preventing Tax Avoidance Activities and Reducing the Risk of Stock Price Crashes in Indonesia

The market bubble phenomenon has hit the capital markets, including in Indonesia. This occurs when a company’s cash flow is lower than investors’ expectations. Even the literature on stock price crash risk, which considers managers’ motives to disguise negative information, identifies that tax avoidance has been used as a mask by managers to cover up poor performance. This study aims to determine the effect of high CEO capability on the relationship between tax avoidance and stock price crash risk in Indonesia. This research method uses a quantitative approach with 436 observations of companies on the Indonesia Stock Exchange during the period 2015–2019. Data was obtained through the official website of the Indonesia Stock Exchange indexed by Kompas 100. The data was tested using ordinary least squares regression model. The results of this study found that, first, tax evasion has a positive effect on the risk of decreasing the share price of companies incorporated in the Kompas 100 index on the Indonesia Stock Exchange. Second, that a highly skilled CEO can weaken the relationship between tax evasion and the risk of falling stock prices. This finding supports the agency theory perspective, where tax evasion is used by opportunistic managers to disguise financial information, thereby increasing the risk of future stock price crash. This study enriches the literature by demonstrating the role of highly skilled CEOs in influencing the intensity of the relationship between tax avoidance and stock price crash risk. Second, this study demonstrates the uniqueness of incorporating the human aspect, in the form of CEO characteristics, into the model linking tax avoidance with stock price crash risk.

Executive compensation and environmental performance: Evidence from CEO inside debt

In this paper, we explore the relationship between CEO inside debt and environmental performance in the US. We provide strong and robust evidence that CEO inside debt significantly improves firms' use of water, energy, and materials, and their commitment to and effectiveness in reducing environmental emissions. We also report that variations in inside debt significantly influence the evolution of environmental performance and incentivize the production of less pollution. Additional analyses reveal that the relationship between CEO inside debt and environmental performance is stronger in firms with high CEO power, low institutional ownership, and less socially responsible investors. Taken together, our results highlight the important role of CEO compensation in improving firms' engagement in favor of the climate.

The influence of the fit between strategic human resource management and CEO strategic leadership behaviours on organizational effectiveness in China

ABSTRACT Strategic human resource management and strategic leadership are both important factors affecting organizational effectiveness. However, few studies have organically integrated their influences on organizational outcomes. Drawing on social information process theory, this study proposed a variety of relationships between high performance work system (HPWS) and CEO relationship-focused leadership behaviours on organizational outcomes including firm performance, organizational-level affective commitment and employee overall turnover rate (e.g. strengthening effect, weakening effect, and substitution effect). Based on a matched data from vice presidents, human resource managers and employees in 182 Chinese firms, this study found the above three relationships between HPWS and CEO relationship-focused leadership behaviours on organizational outcomes. Specifically, when HPWS and CEO relationship-focused leadership behaviours were both high, firm performance and organizational-level affective commitment were higher, and employee overall turnover rate was lower; the effects of HPWS on organizational outcomes would not be significant when CEO relationship-focused leadership behaviours was low; when HPWS was low but CEO relationship-focused leadership behaviours was high, employee overall turnover rate was highest. This study contributed to the understanding of the relationship between ‘system’ and ‘renqing’ in the context of Chinese enterprises, integrated the research on strategic leadership and strategic human resource management, and had important inferences for management practice.

I Did It My Way: CEO Core Self‐Evaluations and the Environmental Contingencies on Firm Risk‐Taking Strategies

AbstractThis study presents an environmentally contingent view of CEO core self‐evaluations (CSE) and their effects on strategic risk taking. Drawing on upper echelons theory and approach‐avoidance theory, we propose that high CSE CEOs are responsive to rather than disregard environmental cues and pursue strategic risks that enable their firms to capitalize on competitive opportunities while refraining from risks not suited to the external environment. Focusing on two forms of strategic risk – resource allocation risk taking and strategic non‐conformity – we develop hypotheses examining the contingencies across levels of environmental concentration, dynamism, and munificence. We test our hypotheses on a panel of 106 CEOs from publicly traded US companies over a period from 1998 to 2004 using historiometric analyses. Supporting our hypotheses, findings indicate that the effects of CEO CSE on resource allocation risk taking and strategic non‐conformity are contingent on industry concentration and environmental dynamism. Findings advance the understanding of CEOs' positive self‐regard.

Auditor Tenure, CEO Compensation and Earnings Management: Evidence from Jordan

The purpose of this study is to examines the impacts of auditor tenure on earnings management and if the CEO remuneration moderates this relationship. The sample includes all firms listed on the Amman Stock Exchange from 2015 to 2019 with the exclusion of the financial sector. The fixed-effect model, robustness testing to ensure data integrity and alternative measurements to ensure reliable results were used in this study. After examining the auditor tenure in this study, the study found that there is a negative and significant association with earnings management. In additional, this study showed that the combined influence of CEO compensation and auditor tenure had a negative and significant impact on earnings management. In order to reduce earnings management by decreasing opportunistic behavior and conflicts of interest, this study emphasizes the importance of high CEO compensation and auditor tenure, which is advantageous to investors, shareholders, political, and stakeholders in Jordanian firms as well as auditing firms.

Agency Cost of Debt and Inside Debt: The Role of CEO Overconfidence

AbstractThis study extends our understanding of CEO inside debt compensation under an agency problem perspective by considering the impact of a behavioural trait, namely CEO overconfidence. Using a sample of US firms in Standard & Poor's ExecuComp for the period 2006–2019, we find that overconfident CEOs exhibit greater inside debt incentives (i.e. incentives arising from defined‐benefit pensions and deferred compensation). This relationship is more pronounced among firms with higher CEO overconfidence‐induced agency cost of debt (e.g. financially unconstrained firms) managed by CEOs who are less able to align compensation with their own preferences (e.g. less powerful CEOs). The results are robust to endogeneity, self‐selection concerns and alternative explanations. We contribute to the inside compensation literature that deals with agency problems under overconfident CEOs, and optimal contracting and managerial power theories.

The “CEO in context” technique revisited: A replication and extension of Hambrick and Quigley (2014)

AbstractResearch SummaryHambrick and Quigley's (2014) “CEO in context” (CiC) technique leads to a much larger CEO effect than traditional ANOVA or multilevel modeling. We replicate H&Q's study, apply their CiC technique to a much more comprehensive U.S. sample, and assess the sensitivity of the model findings to variations in method and data. We generally confirm H&Q's finding of a high CEO effect, but find a smaller industry effect and a larger firm effect in our much larger sample. Applying the CiC technique with adjusted R2s has only a moderate impact on year, industry, and firm effects, but markedly reduces the CEO effect. We also document that CiC model findings are sensitive to sample characteristics, namely firm size and CEO tenure.Managerial SummaryHambrick and Quigley (2014) introduced a new method to analyze the influence of CEOs on firm performance. The study's empirical analysis focused on large U.S. firms. We replicate the original study and extend it to a much larger, comprehensive sample of U.S. firms that is composed of 33,996 firm‐year observations, compared to 4,866 firm‐years in the original study. Controlling for the number of variables used in the estimations, the model attributes about a third of the total variance of firm performance (ROA) to the CEO. Further analyses show that the model findings differ for firms of different size and CEO tenure; the larger the firms and the longer the CEO tenures, the smaller tends to be the percentage of variance explained by the CEO.

Shoot the Arrow, Then Paint the Target: CEO Compensation and Institutional Shareholder Services Benchmarking

AbstractWe document that firms that expect their CEOs’ compensation to exceed the median CEO compensation of their Institutional Shareholder Services (ISS) peers influence ISS to revise these peer sets. Controlling for changes in firm characteristics that ISS uses to select peers, we find that ISS applies an abnormally high turnover rate in the members of these peer sets and increases the representation of focal firms’ chosen peers. This turnover results in increases in the medians of the ISS peers’ CEO compensation and size. We find that these firms underperform and conclude that they attempt to camouflage high CEO pay to mitigate outrage costs.

Research on the Introduction of a Robotic Process Automation (RPA) System in Small Accounting Firms in Taiwan

This study explores the characteristics that influence the success factors of accounting firms in the introduction of a RPA system. The RPA system success factors used in this paper are based on the measurements of the Technology Acceptance Model (TAM) and the Information System Success Model (ISS). In this paper, a questionnaire survey method was used, and a total of 140 questionnaires were distributed to 70 small accounting firms in Taiwan. The results of this study showed that three characteristic factors—male, higher familiarity with the system and high CEO support—were significantly positively correlated with the success factors of the RPA system in accounting firms. Due to resource constraints, small- and medium-sized accounting firms have gone through a more difficult journey of digital transformation than the Big Four. Therefore, research on digital transformation with small- and medium-sized firms as samples is a topic worthy of attention. The research conclusions of this paper can provide a reference for the accounting digital transformation strategies of the accounting industry and educational institutions.

The Greed-Based Path From CEO Compensation to Job Seekers’ Perceptions

Large CEO pay packages have become the subject of increased negative scrutiny among the media and general public, suggesting that CEO compensation may affect the firm by influencing stakeholder perceptions and behaviors. Although some recent research has begun to study the association between high CEO compensation and CEO greed, whether and how CEO greed is perceived by stakeholders remains to be examined. We develop theory on CEO compensation and broaden our understanding of its consequences by examining whether and how CEO compensation leads to perceptions of CEO greed. Focusing on job seekers, a population especially likely to attend to information about firms and CEOs, we find evidence that high CEO compensation leads to perceptions of CEO greed among job seekers and that such perceptions lowers job seekers’ attraction to the CEO’s firm. Moreover, we find that these relationships are weakened for job seekers who themselves exhibit high levels of greed.