Articlegreen2017

CEO pay slice and firm value: evidence from UK panel data

15 citations0/0 files storedReview of Behavioral Finance

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Corporate Finance and Governance Auditing, Earnings Management, Governance Corporate Governance and Financial Management

Abstract

This study examines a relationship between the CEO Pay Slice (CPS)the fraction of the top five executive directors' total compensation that is captured by CEO -and firm value in the UK.CPS reflects the relative importance of CEO as well as the extent to which the CEO is able to extract rents.CPS may also alter effectiveness of board performance by influencing cooperation and cohesiveness among its members.Using a large sample of UK-listed companies over the 1997 to 2010 period, we document evidence supporting a negative relationship between CPS and firm value as measured by Tobin's Q.Our results are consistent with the hypothesis that high CPS is associated with agency problems, and is likely to impact negatively on the executive team's spirit and motivation.Our results have major implications for the on-going debate on how to reform executive remuneration, and highlight the importance of considering remuneration issues at the board level, supporting the principles of UK Corporate Governance Code (2010).

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References

1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 1957A Theory of Cognitive Dissonance 1998Initial conditions and moment restrictions in dynamic panel data models 2017A Theory of Cognitive Dissonance 1995Initial conditions and moment restrictions in dynamic panel data models 1965Inequity In Social Exchange 1998Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data 1988Management ownership and market valuation

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2022Director pay slice, the remuneration committee, and firm financial performance

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