Narrow Results

The value of stock options increases in both stock prices and volatility. It suggests that options might engender incentives for managers to increase both stock prices and volatility. Recent studies have documented a negative association between earnings quality and idiosyncratic volatility: Hence, the lower the earnings quality, the greater the idiosyncratic volatility, and the higher the value of stock options. This study investigates whether there is a link between CEO equity compensation and earnings quality. Using a simultaneous system of equations, we find negative correlations between the two, suggesting that managers have incentives to reduce earnings quality.

The timeliness of financial reporting has been considered as an important factor that contributes to the well-functioning of an economy. This study extends the contemporary research stream by examining determinants of the timeliness of financial reporting process. Specifically, we investigate whether report lag is influenced by (1) the level of executive compensation; (2) the level of stock-based compensation compared to cash-based compensation, and (3) the level of executive compensation above the expected compensation level. We find that firms have shorter report lag when their level of executive compensation is higher. We also document that firms with more stock-based compensation have shorter financial reporting delays. Finally, firms with executive compensation level above the expected executive compensation are more likely to have shorter report lags. Our study underscores the importance of the type and the level of compensation as determinants of firms’ earnings reporting delays.

This paper examines the association between CEO compensation and tangible long-lived assets impairment. We find that the level of CEO compensation is negatively associated with the tangible long-lived assets impairment charges. We also document that in firms with CEOs who have more decision-making power, the negative association between CEO compensation and tangible long-lived assets impairment charges is mitigated. Specifically, the negative association between CEO compensation and tangible long-lived assets impairment charges is less pronounced (1) when CEO chairs the board, (2) when CEO is the founder of the firm, (3) when the CEO is involved in the director selection process, and (4) when overall board independence is low.

This paper aims to empirically examine whether the negative impact of greenhouse gas emissions and energy use disclosures alleviates or exacerbates the positive impact of an overall Environmental, Social and Governance (ESG) disclosure while determining the performance-based CEO pay. A total of 67 companies listed in the NSE Nifty 100 ESG index spanning six years from 2014 to 2019 have been taken as the data sample. As a baseline methodology, the Panel Corrected Standard Errors model is applied and a further two-step system GMM model has been considered for robustness check. ESG disclosure scores show a significant positive effect on the pay–performance relationship, while its interaction with the emissions/ energy use disclosure index gives a negative impact. The results indicate that the significant positive effect of ESG disclosure scores cannot reinforce the negative impact of emissions or energy use while ascertaining the performance-based CEO compensation.

This study examines the association between Corporate Social Responsibility (CSR) activities measured by two of Taiwan’s leading publishers, the Commonwealth Magazine and the Global View Magazine, and the acquirer’s short- and long-term performances after the merger announcement in Taiwan. We use CEO compensation and the firm’s free cash flow as the proxies for CEO self-confidence. We find that the acquirer’s CSR engagement is positively associated with its long-term performance but not with its short-term performance. CEO compensation is positively associated with the acquirer’s performance, especially after the mandatory establishment of the remuneration committee for publicly traded firms. However, the acquirer’s free cash flow is found negatively associated with its performance, supporting Jensen’s (Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76, 323–329) free cash flow hypothesis or CEO hubris. These findings indicate that the CSR measurements of Commonwealth Magazine and Global View Magazine do provide valuable information for CSR activities and that CSR activities do enhance firm value in the long run. Furthermore, the requirement for the establishment of the remuneration committee does improve the effectiveness of CEO compensation for firm performance in Taiwan.

We examine the association between CEO cash and equity compensation and non-GAAP disclosure practices in a responsive regulatory and opaque compensation reporting environment. Our empirical evidence, based on a sample of public companies in New Zealand, shows that CEO cash compensation is associated with the likelihood and frequency of non-GAAP disclosures, whereas equity incentives are not. Our results document evidence of an increase in the frequency of non-GAAP disclosures and a decrease in the provision and quality of reconciliation between non-GAAP measures and closely related GAAP measures around CEO cash compensation. In particular, managers use these disclosures when their GAAP earnings benchmarks are missed. A marginal decrease in opportunistic non-GAAP disclosures following the adoption of the International Financial Reporting Standards (IFRS) indicates little change in reporting behavior following adoption of IFRS. Our findings suggest that managers disclose non-GAAP measures with opportunistic intentions motivated by compensation and points to the need for regulators to set policy about clear reconciliation standards.

A performance-based CEO compensation plan can help organisations incorporate an innovative culture. Concentrated ownership structure can enable shareholders to play a key role in the strategic decision-making of a company by exercising their statutory rights. Purpose of this paper is to understand the moderating impact of ownership concentration on the nexus of CEO compensation and firm innovation relationship. Data about all A-share non-financial companies listed at the Shanghai Stock Exchange and Shenzhen Stock Exchange is obtained from CSMAR database of China. Panel data analysis by using year and industry effects indicates that CEO compensation positively and significantly affects organisational innovation. Furthermore, ownership concentration as measured by top 5 shareholders strengthens this relationship. Findings of this study can help investors, policymakers and creditors to understand the importance of CEO compensation towards innovation in the presence of a concentrated ownership structure. Chinese economy is the fastest growing developing economy and therefore, Chinese contextual findings may be selected as a benchmark for other developing countries.

This paper provides empirical evidence that media coverage of CEOs, a channel of investor recognition, significantly increases firm value, measured by Tobin’s q. The result is robust to alternative econometric methods and checks of causality. Firms with the highest level of CEO media coverage and positive coverage outperform those with the lowest levels by 8% and 7% per year, respectively, in abnormal stock returns. Media coverage also impacts CEO rent extraction through compensation. Subsequent total pay rise is 4.1% above and beyond what CEOs obtain from the increase in firm value that arises due to media coverage.

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.

Executive remuneration has attracted the attention of the general public in recent years. It is an interest driven by the extensive and sustained rise in executive pay experienced in most developed countries. Two questions arise from increased executive pay. First, what are the determinants of executive pay and what is the nature of the relationship between executive pay and firm performance? Second, does rising executive pay reflect top management's contribution to firm performance or it is just following stationary patterns depending on past years? Prior research provides mixed findings, which may be attributed to the overlooked fact of the dynamic nature of the pay-performance association. Using UK data from 2000–2012, and employing mainly the generalised method of moment estimation (SYSTEM-GMM), this study aims to investigate whether chief executive officer (CEO) pay does actually enhance firm performance. I found that past CEO salary has a negative impact on accounting earnings, while CEO bonuses positively determine future earnings. It is also found that long-term compensation is positively associated with market-based performance measures. This supports the agency framework that executive pay can align the interests of managers and shareholders.

We examine the effect of book-tax differences on CEO compensation. We posit that CEOs can opportunistically exercise the discretion in GAAP to increase accounting income without affecting taxable income and in so doing increase their compensation. We test the data to determine which competing hypothesis dominates — efficiency or rent-seeking. Under the efficiency hypothesis, the board of directors uses the information in book-tax differences to undo CEOs’ attempts to artificially inflate accounting income and hence CEO compensation is negatively associated with book-tax differences. Under the rent-seeking hypothesis, CEOs gain effective control of the pay-setting process so that they set their own pay with little oversight from shareholders and directors. Directors do not use the information in book-tax differences to undo CEOs’ attempted earnings manipulation and this gives rise to a positive association between CEO compensation and book-tax differences. Consistent with the efficiency hypothesis, we find that CEO compensation is negatively associated with book-tax differences suggesting that directors use the information in book-tax differences to reduce excessive CEO compensation. We also find that strong corporate governance structure strengthens the negative association between CEO compensation and book-tax differences. Specifically, firms with high insider equity ownership and high proportion of independent directors on the board have lower CEO compensation when book-tax differences are large.

This chapter examines the impact of product market competition on the benchmarking of a CEO’s compensation to their counterparts in peer companies. Using a large sample of US firms, we find a significantly greater effect of CEO pay benchmarking in more competitive industries than in less competitive industries. Using three proxies for managerial talent that have been used by Albuquerque et al. (2013), we find that CEO benchmarking is more pronounced in competitive markets wherein managerial talent is more valuable. This suggests that pay benchmarking and product market competition are complements. The above results are not due to industry homogeneity.