Increase In CEO Research Articles

Political power differential and forced CEO turnover: Evidence from Chinese non‐state‐owned enterprises

AbstractIn China, the prevalence of strong political connections among a significant number of boards of directors and CEOs highlights the importance of cultivating such relationships. This is particularly relevant when considering the Chinese political system where officers holding higher political ranks wield dominant, or even absolute, power in decision‐making. Our findings reveal that the political power differential (PPD) between a board of directors and its CEO plays a pivotal role in mitigating CEO entrenchment associated with political power. Specifically, when directors possess more political power than their CEOs, they can effectively fulfil their disciplinary role, leading to the dismissal of underperforming CEOs. Our study substantiates a significantly positive relationship between PPD and the probability of a forced CEO turnover, as well as the sensitivity of CEO turnover to performance. Notably, as PPD increases by one standard deviation from its mean level, we observe an approximate 30% increase in CEO turnover‐performance sensitivity. These findings confirm a higher likelihood of replacing underperforming CEOs in firms with a politically powerful board. Our results also highlight that a higher proportion of either independent or female directors alone does not guarantee effective monitoring. The key lies in ensuring that these directors possess stronger political power than the CEO.

CEO Pay Disparity and Firm Value

Prior studies have reported mixed results with regard to the effect of CEO pay disparity on firm value. While one stream of studies provides evidence that, based on tournament theory, a higher wage difference between CEOs and VPs positively affects firm value, other studies refer to the managerial power theory and show that the relationship is in fact negative. In this study, I investigate the roots of prior mixed findings to identify what the true effect is, if any. I conclude that the findings of prior studies have been biased due to 1) the existence of biased observations in the ExecuComp database, 2) incomplete research models, and 3) the choices of sample period. I replicate prior studies, properly adjust their models, and identify biased observations in their sample to analyze how CEO pay disparity can affect firm value. I find that firm value is positively affected by the difference between the salary of CEOs and that of their VPs, which could also justify one of the reasons behind the increase in CEO pay disparity in recent years.

CEO Power, Corporate Risk-Taking, and the Role of Institutional Owners: Pieces of Evidence of Tehran Stock Exchange Market and Iran Fara Bourse

"Corporate governance" includes mechanisms to monitor CEO's performance to assure efficient decision adoption and maximize firm value. One of the most effective aspects of firm performance is the degree of risk-taking. This study investigates the relationship between CEO power and institutional ownership with risk-taking behavior of member firms of Tehran Stock Exchange and Iran Fara Bourse during 2010-2019 by utilizing quintile regression. According to the results, by the increase of CEO's power and the company's benefit from powerful managers, the company risk (total risk and systemic risk) will decrease. As a result, managers are eager to safeguard their reputation as expert decision-makers and, as a result, they try to reduce company risk. In addition, the existence of institutional ownership among the shareholders of the company will reduce the risk, which can be referred to in the agency theory. Also, if the impact of these two variables is considered together, the risk will increase significantly. This very fact reflects the exercise of the power and influence of institutional owners. As a result, large shareholders have a supervisory role in the discipline of managers, but despite their impact on the relationship between managers' power and corporate risk, they do not alter the main negative relationship.

Influence of Firm Size on CEOs Compensation

This study focused its attention to the link among firm size and CEO compensation of firms listed at the NSE. Previous researchers have identified firm’s characteristics that influence the firm’s ability to perform. The identified characteristics include firm size, age, reputation and legitimacy. A firm’s characteristics could be described through reference to resources the firm owns and by the organization’s objectives. Previous researches examined the factors influencing CEO compensation revealed a lack of consensus to the explanation of increases in CEO’S compensation. While most of the studies confirm linkages between organizational performance and CEO compensation, they measured organizational performance using financial indicators of performance, this study investigates the link between firm size and CEOs compensation. The study’s population constituted 40 firms listed at the NSE. A mixed design was adopted in the study. Primary data was gathered to capture the opinion of board members on firm size characteristics that determine levels of CEO’S compensation using semi structured questionnaire. Secondary sources of data were used to gather information on financial performance from the financial statement of the listed organizations for 2016-2017 financial periods. Descriptive statistics, correlations, linear, multiple and stepwise regression were applied in analyzing and interpreting the data that was collected. The research revealed that there was significant and positive relationship between firm size and CEOs compensation. The findings of this study are of benefit to board members of organizations in identifying the performance measures that are important to consider when making decisions on CEO remuneration.

Analysis of the Effect of Hedge Fund Activism on Target Firm’s CEO Compensation

Inspired by recent academic advancement as well as real-world cases on hedge fund activism, the main purpose of this paper is to verify the potential effects of hedge fund activism on target firm’s CEO compensation. We used Propensity Score Matching and Difference-in-Differences approach to conduct the statistical analysis based on 835 analyzed samples. We found that the difference between the previous CEO pay level before hedge fund’s intervention and the post CEO pay level after hedge fund’s intervention for target firms is smaller compared to that for non-target firms. The result provides new evidence for the argument that the hedge fund’s intervention can be effective in suppressing the increase in CEO pay in hedge fund’s target firm. The study reveals a possibility that the hedge fund’s involvement in target firm can be viewed as a solution to adjust the executive pay to the reasonable level and make the executive compensation structure more based on company performance.

Cost of Debt Financing Under Simultaneous Changes in Shareholder Rights and CEO Debt-Like Pay

I document evidence that 525 S&P 1500 companies that remove anti-takeover provisions (``ATPs) in period 2009-22017 raise their CEO inside debt afterwards to address the heightened agency problem of debt due to increased leverage. By using a difference-in-difference-in-difference analysis, I document significant increases in CEO inside debt-equity ratios after companies remove ATPs. Inside debt also rises significantly after ATP removals, which accounts for 70\% of increases in the overall ratios. In contrast, inside equity significantly decreases after companies remove ATPs, as these companies reduce the stocks and options awarded to their CEOs. These findings are robust to different explanatory variables, matching samples, and removals of certain ATPs. Further analysis displays that inside debt-equity ratios increase continually for the first three years after ATP removals. This trend coincides with the after-ATP-removal spike in leverage, which is caused by increased debt issuance. I also show that increasing inside debt-equity ratios, especially increasing inside debt, helps companies reduce the cost of borrowing after ATP removals.

Is an M&A self‐dealing? Evidence on international and domestic acquisitions and CEO compensation

AbstractWe examine the effect of international acquisitions on CEO compensation for US firms from 1995 to 2016 using both domestic acquisition and no acquisition firms as benchmarks. We find that acquisitions lead to a greater increase in CEO compensation (especially incentive‐based compensation), which is consistent with agency theory and inconsistent with stewardship or reputation theory. We also find that international acquisitions lead to a greater increase in CEO incentive‐based compensation than domestic acquisitions, supporting matching theory given that international acquisitions are larger and more complex to manage. Additionally, we document that CEO tenure has a positive effect on CEO compensation, whereas firm relatedness has a negative effect on post‐acquisition CEO compensation. This is the first study of its type based on comprehensive data, and it contributes to our understanding of the role of international and domestic acquisitions in CEO compensation.

Organizational Performance and Chief Executive Officer’s (CEO’s) Compensation for Firms Listed in Nairobi Securities Exchange, Kenya

This study examined the link between organizational performance and CEO’S compensation of firms listed at the NSE. Past studies on the determinants of CEO’S compensation revealed a lack of consensus to the explanation of increases in CEO’S compensation. While most of the studies confirm linkages between organizational performance and CEO’S compensation, they measured organizational performance using financial indicators of performance, the current study investigates the relationship between organizational performance and CEO’S compensation but differs from the previous studies by expanding the measures of organizational performance to include the balanced scorecard measures of performance. The theoretical foundations of this study were based on agency theory. The study’s population constituted 60 firms listed at the NSE. Descriptive crossectional survey was adopted for this study. Both Primary and Secondary data were used to gather information required for the study. Descriptive statistics and regression were used to analyze and interpret the collected data. The study revealed that there wassignificant and positive relationship between organizational performance and CEO’S compensation. The findings of this study are of benefit to board members of organizations in identifying the performance measures that are important to consider when making decisions on CEO’S compensation.

Influence of CEOs Power on Their Compensation

There is growing concern that over recent decades CEOs tend to earn overwhelmingly more than the average worker. This throws the researchers to question the economic benefit of paying CEOs huge amount of money while we have discouraged workers who may become less productive and therefore lowering the firm profitability. Researchers have taken positions on both sides of the debate over whether the level of CEO’s pay is economically justified or is the result of managerial power. This study sought to establish the extent of power that CEO’s possess among Kenya firms listed at the Nairobi Securities Exchange. CEO’s power was measured in terms of structural power, ownership power, CEO tenure and Board composition. The study used secondary data. Data was collected from 60 firms listed at the NSE. Using a cross sectional design, a regression model was fitted to show the relationship between CEO’s power and CEO’s compensation. Descriptive and inferential results were obtained. The findings revealed that in the Kenyan context CEO’s power does not significantly influence CEO’s compensation. CEO’s pay is market-determined and reflects the bidding by firms for scarce executive talent. The increase in CEO’s pay is due to the rise in incentive compensation that links pay to firm performance and aligns the incentives of managers with those of shareholders.

Top management inside debt and corporate social responsibility? Evidence from the US

This study provides evidence on the relationship between CEO inside debt and corporate social responsibility (hereinafter, CSR). We find that an increase in CEO inside debt leads to high levels of CSR. This finding is robust to controlling for the sensitivity of CEO equity compensation to volatility as well as to alternative measures of CSR. We also find that CEO inside debt is directly related to firms’ primary stakeholders (Community, Diversity, Employee Relations, Environment, and Product Characteristics). Our results are in line with the risk mitigation hypothesis and shed more light on CSR as a channel through which managers with more inside debt tend to respond to debtholders’ demands as their appetite for risk decreases.

The impact of hiring directors' choice‐supportive bias and escalation of commitment on CEO compensation and dismissal following poor performance: A multimethod study

AbstractResearch SummaryBoards of directors make high‐stake decisions that involve hiring, compensating, and dismissing CEOs. Building on theory about choice‐supportive bias and escalation of commitment, we theorize that “hiring directors” (directors who were present during a CEO's hiring) will display choice‐supportive bias and escalate commitment to poorly performing CEOs. Primary data from 73 directors indicate that directors are indeed biased toward CEOs they help hire. Archival data from S&P 1500 firms reveal that, following poor performance, the number of hiring directors is positively related to the increase in CEO pay and lower likelihood of CEO dismissal. Building on theory about board experience, we also predict and find that more experienced boards reduce the tendency to escalate. Thus, bias among hiring directors can be mitigated via experience.Managerial SummaryMaking a choice such as casting a vote or selecting a restaurant leads people to view their selection favorably even if evidence emerges suggesting it was a bad choice. We examine whether corporate directors fall prey to this choice‐supportive bias when involved in CEO hiring. We found that directors who are part of the hiring process tend to have an overly rosy view of the person selected. Moreover, if the firm is performing poorly, a board with more directors who helped hire the current CEO will tend to increase the CEO's pay more and are less likely to fire the CEO than a board with fewer such directors. This problem is reduced if the board has highly experienced directors among its ranks.

Organizational Performance, Firm Size and Chief Executive Officer’s (CEO’S) Compensation for Firms Listed in Nairobi Securities Exchange, Kenya

This study examined the link between organizational performance, firm size and CEO’S compensation of firms listed at the NSE. Past studies on the determinants of CEO’S compensation revealed a lack of consensus to the explanation of increases in CEO’S compensation. While most of the studies confirm linkages between organizational performance and CEO’S compensation, they measured organizational performance using financial indicators of performance, the current study investigates the relationship between organizational performance and CEO’S compensation but differs from the previous studies by expanding the measures of organizational performance to include the balanced scorecard measures of financial indicators, customer satisfaction, internal processes and learning and growth elements of performance. Additionally, the study sought to find out the moderating role of firm size on the relationship between organizational performance and CEO’S compensation. The theoretical foundation of this study was based on agency theory. A conceptual model and conceptual hypothesis were drawn from literature and provided directions for this study. The study’s population constituted 60 firms listed at the NSE. Descriptive crossectional survey was adopted for this study. Primary data was collected to capture the opinion of board members on factors that determine levels of CEO’S compensation using semi structured questionnaire. Secondary data was gathered from the financial statements of the listed firms for 2015-2016 financial periods. Descriptive statistics and stepwise regression were used to analyze and interpret the collected data. The study revealed that there was significant and positive relationship between organizational performance and CEO’S compensation. The study further found that firm size had a significant moderating effect on the relationship between organizational performance and CEO’S compensation.

CEO Compensation after Harvester Director Departure

I examine the effects of board member departures on CEO compensation using a sample of high-growth IPO firms. Agency theory predicts that a reduction in board monitoring by harvester directors (VCs and private equity investors) will result in an increase in CEO pay. I find that departures of the last harvester director on a board result in an immediate and lasting increase in CEO equity compensation, while prior departures by other harvester directors are not significant. The results hold even when controlling for other governance mechanisms, such as CEO wealth, CEO turnover, board composition, and external blockholder ownership.

Phantom Menace: Role of Pseudo Peers in CEO Compensation

We study the compensation influence of highly central firms (“stars”) in CEO compensation peer networks. We find that lower-profile firms covertly tie CEO compensation to these influential “stars.” We propose a “Herding on stars” hypothesis: lower-profile, agency-prone firms herd on the same set of stars and avoid shareholder scrutiny. Better governance and reputable compensation consultants diminish herding. Herding-driven excess pay does not elicit negative ISS recommendations or shareholder opposition. Herding emerges after the 2006 SEC rule inadvertently identified firms with the greatest compensation influence. Evidence suggests that such herding contributes to the rapid increase in CEO pay at smaller, less visible firms.

Does the Theory of Marginal Productivity Apply to CEOs

The distribution of earnings in the United States has become more unequal in recent decades. The main reason is that the earnings of workers at the top of the distribution have increased more than the earnings of workers at the middle or bottom of the distribution. Some economists argue that higher CEO pay is one reason for the increase in inequality. According to one explanation, CEO pay has grown for the same reasons as the increase in pay in other occupations. Another explanation is that the labor market for CEOs does not fit the model of perfect competition and that CEOs are able to influence how much they are paid. A third explanation is that the labor market for CEOs is like the market for entertainment superstars. The supply of persons qualified to be CEOs is relatively inelastic. An increase in demand raises CEO pay. This paper considers a fourth explanation for the increase in CEO pay. The demand for CEOs may be relatively inelastic. An increase in CEO pay may not affect the number of CEOs employed. Thus, the theory of marginal productivity may not apply to CEOs.

Common Ownership, Competition, and Top Management Incentives

Standard corporate finance theories assume the absence of strategic product market interactions or that shareholders don’t diversify across industry rivals; the optimal incentive contract features pay-for-performance relative to industry peers. Empirical evidence, by contrast, indicates managers are rewarded for rivals’ performance as well as for their own. We propose common ownership of natural competitors by the same investors as an explanation. We show theoretically and empirically that executives are paid less for own performance and more for rivals’ performance when the industry is more commonly owned. The growth of common ownership also helps explain the increase in CEO pay over the past decades.

Director and CEO pay reciprocity and CEO board membership

This study examines the relation between changes in non-executive director compensation and changes in CEO compensation. Consistent with norms of reciprocity, we report a positive relationship between changes in director pay and change in CEO pay for those firms where the CEO is also a board member. The results support the view that when a CEO who is also a board member validates increases in director pay, directors respond in kind, approving increases in CEO pay. This reciprocity does not benefit shareholders by improving subsequent firm value. We report that excess change in CEO and director compensation reduces subsequent change in firm value for firms where the CEO is a board member.

CHIEF EXECUTIVE OFFICER (CEO) POWER, CEO KELUARGA, DAN NILAI IPO PREMIUM PERUSAHAAN KELUARGA DI INDONESIA

The development of family firms led to increase the funding requirement for expansion. Family firms can obtain funds from capital market by doing initial public offering (IPO). The aims of this research is to know the influence of CEO power using proxy of CEO voting right, CEO tenure, and CEO interlock on IPO premium, and the influence of family CEO on IPO premium. This research uses 65 samples of family firm in Indonesia during 2001-2014. The result of multiple regression showed that CEO voting right, CEO interlock, and family CEO are positive significantly affect IPO premium. This finding reveal that when investors make investment decision on IPO’s firms, they will evaluate the quality of firm’s CEO. Also, the presence of family CEO increase investor’s valuation on company shares that increase IPO premium.

CEO Compensation after Harvester Director Departure

I examine the effects of board member departures on CEO compensation using a sample of high growth IPO firms. Agency theory predicts that a reduction in board monitoring by harvester directors (VCs and private equity investors) will result in an increase in CEO pay. I find that departures of the last harvester director on a board result in an immediate and lasting increase in CEO equity compensation, while prior departures by other harvester directors are not significant. The results hold even when controlling for other governance mechanisms such as CEO wealth, CEO turnover, board composition, and external blockholder ownership.

The Upward Redistribution of Income

This paper examines the extent to which the growth in rents can explain the upward redistribution in income since 1980. It examines and provides preliminary estimates for the growth of rents in four main areas: increased patent and copyright rents, the growth of the financial sector, the increase in CEO pay due to the failure of the corporate governance, and the increase in pay for the most highly paid professionals due to protectionist barriers.