Tesi sul tema "Executive compensation"

This thesis consists of two studies in the area of executive compensation. The first examines the effect of boards of directors’ characteristics on the degree of compensation efficiency with respect to the use of private information. I predict and find that boards’ competence both in information acquisition and in monitoring influence the extent to which boards use private performance measures in CEO compensation. Specifically, smaller and more independent boards with their CEOs as the board chair are more efficient in exploiting private performance measures. Furthermore, the better a board balances its information role with its monitoring role, the more efficient it is in exploiting private performance measures. No asymmetry is found in rewarding and punishing CEOs based on private information. The second study investigates the mechanism to inflate the value of executive stock options after Sarbanes-Oxley Act Section 403 (SOX 403), which requires that executive option grants be reported to the SEC within two business days following the grant day. As this requirement largely restricts backdating of executive option grants, I examine whether firms that previously backdated resort to alternative strategies after SOX. Using firms that were relatively free from backdating before SOX as a control group, I find that in the post-SOX period previous backdating firms exhibit a significantly larger return reversal around option grant dates, suggesting some sort of opportunistic behavior is still going on in these firms. Furthermore, I find that post-SOX option grant filings of previous backdating firms are as timely as those of the non-backdating control group, and that the large return reversals are associated with a pattern consistent with strategic timing of grants and disclosures; that is, a larger proportion of option grants are issued right after bad news (before good news) than right before bad news (after good news). These findings suggest that firms that previously backdated engage in strategic timing as an alternative mechanism to lower the grant-date stock price in the post-SOX period.

Thesis advisor: Philip Strahan
Chapter 1: Executive Compensation and Aspirational Peer Benchmarking Abstract: Using a comprehensive, hand-collected dataset of explicit peer group relationships, I document that small firms engage in upward compensation benchmarking to a much greater degree than large firms do. In contrast to the prior literature studying larger firms, small firms choose aspirational peers that reflect their executives' shifting opportunity sets. For these firms, compensation benchmarking is indicative of future growth and performance, and the rate at which pay adjusts toward peer levels is sensitive to the transferability of managers' human capital. Overall, the data suggest that growing and outperforming small firms strategically use upward benchmarking to adjust pay in an effort to retain managerial talent. Chapter 2: Common Ownership and Relative Performance Evaluation Abstract: Recent research suggests that large institutional shareholders that simultaneously hold positions in naturally competing firms may influence managers to collude and reduce product market competition. This paper finds that common owners do not alter executive incentive schemes in a way that is conducive to collusion. I find that common ownership is positively related to the use of explicit relative performance evaluation (RPE), which rewards executives for outperforming their peers. Additionally, commonly held firms are more likely to benchmark RPE awards against commonly held peers. My results suggest that the managers of commonly held firms lack the financial incentives to collude with product market rivals
Thesis (PhD) — Boston College, 2018
Submitted to: Boston College. Carroll School of Management
Discipline: Finance

Diese Dissertation stellt empirische Evidenz zu den Fragen der Verguetung von Fuehrungskraeften. Analyse der Daten der US-Firmen auflistet, finde ich eine umgekehrte U-foermige Beziehung zwischen Management Ownership und Unternehmensperformance, aber diese Beziehung verschwindet, wenn Unternehmensperformance von den letzten Jahr kontrolliert wird. Ich finde auch, dass die Executive Option Awards positiv auf Unternehmensperformance bezogen, während Executive Stock Awards hat keinen statistischen signifikanten Einfluss auf den Unternehmensperformance. Statistische Evidenz zeigt auch, dass die Struktur der Verguetung von Fuehrungskraeften Vertraege zu Unternehmen Eigenschaften und Executive persoenlichen Merkmalen zusammenhaengt.
This dissertation provides empirical evidence on the issues of executive compensation. Analyzing data of U.S. listing firms, I find an inverted U-shaped relation between managerial ownership and firm performance, but this relation vanishes when firm performance from last period is controlled. I also find that executive option awards is positively related to firm performance, while executive stock awards has no statistically significant impact on firm performance. Evidence also indicates that the structure of executive compensation contracts is related with observable and unobservable firm attributes and executive personal characteristics.

This doctoral thesis is made of three empirical research papers focused on executive compensation topics. The first chapter is a solo paper, while the second and third papers are co-authored with Antonio Parbonetti. The first chapter answers to Bushman and Smith’s (2001) call for research on compensation of executives other than CEOs. Specifically, using a sample of 586 firm-year observations over the period 2000-2009, I investigate the economic determinants and effects on shareholder value of the equity incentives given to the Chief Marketing Officer (CMO). The paper shows that, when companies invest more in marketing activities, they also give the CMO more equity incentives. I also find that CMOs’ equity incentives are positively related to shareholder value and that this positive relationship is incremental to that between CEOs’ incentives and firm value. Finally, I document that the positive impact of CMOs’ equity incentives on firm value is not limited to those firms that invest more than the industry average in marketing, suggesting a strategic role for the CMO that is not linked only to the size of the marketing budget. These findings, which help to advance our understanding of the determinants and effects of executive compensation, have considerable practical implications. Specifically, I challenge the mainstream view that the CEO’s compensation captures all first-order effects and that the consequences of the compensation structure of executives other than the CEO are negligible. In fact, I document that the Chief Marketing Officer plays a central role in delivering shareholder value when she is properly incentivized. I also show that companies do not simply rescale the CEO’s incentives when they decide how to incent the CMO, but they take a proactive role in detecting other economic determinants in order to set the appropriate level of incentives. Therefore, findings reported in the paper warn companies not to focus only on setting the CEO’s incentives, while neglecting to incent other key top executives such as the CMO. The second chapter, instead, analyzes how CEO’s equity incentives, risk incentives and career concerns drive the trade-off among earnings game strategies. Accounting literature documented that managers, in order to meet earnings targets, may engage in the numbers game by making choices among three non mutually exclusive strategies. Specifically, executives can alter reported earnings through real or accrual earnings management, and/or guide analysts’ expectations downward in an attempt of avoiding negative earnings surprises. Previous literature showed that stricter regulation (i.e. the passage of the SOX), and firm’s specific characteristics, influence the relative costliness of each earnings game strategy (Cohen et al., 2008; Zang, 2012). Nonetheless, literature fails to recognize that earnings game strategies are decided and executed by the CEO, who is going to consider, in the choice of how meeting/beating targets, also her personal costs and benefits. Using a sample of 4,471 quarterly observations, from 1,088 U.S. firms that are likely to have engaged in the earnings game over the period 2003-20010, I show that CEOs trade off the different earnings game strategies according to their personal benefits and costs. Specifically, I find that CEOs with high equity incentives and high career concerns engage less in real activity manipulations than executives with low incentives, and substitute this earnings game strategy with other alternatives. Additionally, I document that firms using real activity manipulation to meet/beat targets have lower future market performances than firms using accrual earnings management or analysts’ guidance. This result indicates that earnings game strategies that mostly rely on the alteration of real activities, impose very high costs on shareholders. CEOs appear to understand and anticipate this effect and, when their interests are aligned with those of shareholders in terms of equity incentives and career concerns, they avoid to choose real earnings management strategies. Overall, this chapter contributes to a well established research stream such as earnings management, by analyzing the trade-off among earnings game strategies from a new prospective. Finally, the last chapter focuses the attention on CEO’s compensation in the financial industry, which has attracted an increasing interest in recent years. In fact, executive compensation has been blamed of being one of the most fundamental causes of the recent credit crisis, providing CEOs with incentives to take too many big bets that turned out to be extremely costly (Solomon and Paletta, 2009). Specifically, the paper investigates the role of CEO’s equity and risk incentives in boosting securitizations in the financial industry and in motivating executives to reduce the perceived risk while betting on it. Using a sample of US financial institutions over the period 2003-2009, the paper documents that CEOs with high equity incentives have systematically engaged in securitization transactions to a larger extent than CEOs with low incentives. It also shows that CEOs with high equity and risk-related incentives engaged in risky securitization activities and used securitization for transferring risks to outside investors. Finally, the paper shows that executives incentivized on risk provided outside investors with low quality disclosure about losses recorded on securitized loans, thus contributing to increase the opacity of securitization transactions undertaken. Overall, I interpret these results as evidence that CEOs foresaw in securitizations under US GAAP an opportunity for hiding risks while bearing them and generating profits and cash flows because of the risks. In additional analyses, I document that before the collapse of the subprime mortgage market in 2007, financial institutions involved in the securitization of subprime loans largely over performed other banks in terms of market returns and earnings. On the contrary, starting from 2007 subprime securitizers have recorded worse performances than other financial institutions that were not involved in subprime securitization. This indicates that, by securitizing risky loans, CEOs were successful in boosting stock price and earnings, but the risks undertaken turned out to be extremely costly. This paper, therefore, adds to the large stream of research warning about possible side effects of equity compensation, and uncovers a determinant of securitization transactions that has been overlooked by previous literature
Il presente lavoro è costituito da tre articoli accademici, di natura empirica, focalizzati sul tema della remunerazione dei manager. Il primo capitolo è un paper a firma unica, mentre il secondo e terzo paper sono co-autorati con Antonio Parbonetti. Il primo capitolo analizza la remunerazione di manager diversi dall’amministratore delegato (CEO), come suggerito da Bushman and Smith’s (2001). In particolare, utilizzando un campione di 586 osservazioni dal 2000 al 2009, lo studio analizza le determinanti economiche e gli effetti sul valore aziendale degli incentivi azionari forniti al Direttore Marketing (Chief Marketing Officer, CMO). I risultati mostrano che, quando le aziende investono maggiormente in marketing, forniscono al CMO maggiori incentivi azionari. Inoltre, lo studio rivela che gli incentivi azionari forniti al CMO sono positivamente correlati al valore aziendale e che tale effetto è incrementale rispetto a quello dovuto agli incentivi monetari del CEO. Infine, il capitolo rivela che l’impatto positivo sul valore aziendale riconducibile agli incentivi azionari del CMO non è limitato esclusivamente alle aziende con elevati investimenti di marketing. Questo suggerisce che il CMO riveste un ruolo strategico nell’azienda che non è esclusivamente legato all’entità del budget di marketing. I risultati riportati nello studio hanno considerevoli implicazioni pratiche. In particolare, essi sono in contrapposizione con la tradizionale percezione che la remunerazione del CEO catturi tutti gli effetti rilevanti e che, quindi, sia di marginale importanza studiare la struttura di incentivazione di executive diversi dal CEO. Infatti, lo studio documenta che il CMO, quando propriamente incentivato, riveste un ruolo strategico chiave nel creare valore aziendale. Inoltre, i risultati suggeriscono che le aziende, nel determinare gli incentivi dei manager diversi dal CEO, non ridimensionano semplicemente la struttura di remunerazione dell’amministratore delegato, bensì cercano di identificare delle determinanti economiche rilevanti per definire l’appropriato livello di incentivi. Il secondo capitolo, invece, analizza come gli incentivi azionari, gli incentivi al rischio e i career concern del CEO influiscono sul trade-off tra le diverse strategie di earnings management. La letteratura di accounting ha documentato che, al fine di raggiungere determinati obiettivi di performance, i manager possono scegliere di 1) manipolare gli utili contabili utilizzando la flessibilità concessa dai principi contabili (accrual-based earnings management), 2) manipolare le decisioni di investimento dell’azienda (real earnings management), 3) abbassare le aspettative degli analisti per evitare di non raggiungere le loro stime (analysts’ expectation guidance). La letteratura ha mostrato che una regolamentazione più severa, e caratteristiche intrinseche dell’impresa, influenzano il costo delle menzionate strategie di earnings game (Cohen et al., 2008; Zang, 2012). Tuttavia, non si è prestata la dovuta attenzione al fatto che la scelta della strategia di earnings game da utilizzare viene effettuata, in ultima istanza, dal CEO dell’azienda il quale considererà nella scelta anche i propri incentivi. Utilizzando un campione di 4,471 osservazioni dal 2003 al 2010, il secondo capitolo mostra che il CEO sceglie quale strategia di earnings game utilizzare anche in funzione di costi e benefici personali. In particolare, i risultati indicano che i CEO con maggiori incentivi azionari e con più elevati career concern, utilizzano di meno le strategie di real earnings management e le sostituiscono con le altre due alternative. Inoltre, lo studio mostra che le aziende che utilizzano in misura maggiore il real earnings management registrano performance future di mercato significativamente inferiori a quelle aziende che invece utilizzano altre strategie di earnings game. Tale risultato suggerisce che quando i manager manipolano le decisioni di investimento dell’azienda, al solo fine di raggiungere alcuni target di performance, impongono alti costi agli azionisti. I manager sembrano comprendere ed anticipare questo effetto e, quando i loro interessi sono maggiormente allineati con quelli degli azionisti in termini di incentivi azionari e career concern, utilizzano in misura minore le strategie di real earnings management. In conclusione, il secondo capitolo contribuisce ad un filone di ricerca già ben sviluppato andando ad analizzare il trade-off tra le strategie di earnings game da una nuova prospettiva: quella dei manager. Infine, l’ultimo capitolo si focalizza sulla struttura di remunerazione del CEO nel settore finanziario; tematica quest’ultima particolarmente dibattuta negli ultimi anni. Infatti, la struttura di remunerazione degli executive nel settore finanziario è stata accusata di essere una delle principali cause della recente crisi finanziaria, poiché avrebbe fornito ai manager incentivi ad assumere eccessivi rischi (Solomon and Paletta, 2009). In particolare, il capitolo analizza il ruolo degli incentivi azionari e degli incentivi al rischio nel motivare i CEO ad intraprendere operazioni di cartolarizzazione dei mutui, riducendo i rischi percepiti dagli investitori esterni ma, al contempo, scommettendo su di essi. Utilizzando un campione di istituzioni finanziarie statunitensi dal 2003 al 2009, lo studio documenta che i manager con elevati incentivi azionari hanno sistematicamente cartolarizzato una quantità maggiore di mutui. I risultati indicano altresì che i manager con elevati incentivi azionari ed incentivi al rischio, sono stati maggiormente coinvolti in operazioni di cartolarizzazione di mutui subprime, utilizzando in tal modo lo strumento della cartolarizzazione per trasferire i rischi ad investitori esterni. Inoltre, lo studio documenta che i manager incentivati al rischio hanno fornito una disclosure di qualità peggiore agli investitori esterni ed hanno pertanto contribuito ad aumentare le asimmetrie informative. Nel complesso, le analisi svolte suggeriscono che i manager hanno intravisto nelle operazioni di cartolarizzazione dei mutui la possibilità di nascondere i rischi generati ed incrementare i profitti delle proprie istituzioni finanziarie. In analisi aggiuntive, il capitolo mostra che, prima del crollo del mercato dei mutui subprime avvenuto nel 2007, le istituzioni finanziare coinvolte nella cartolarizzazione dei mutui subprime hanno registrato performance significativamente superiori ai propri concorrenti. Tuttavia, una volta che la crisi finanziaria è emersa, tali istituzioni ne hanno subito le conseguenze in misura maggiore. Pertanto, i risultati suggeriscono che, grazie alla cartolarizzazione dei mutui subprime, i manager delle grandi istituzioni finanziarie statunitensi hanno avuto successo nell’incrementare i profitti delle proprie istituzioni; tuttavia ciò è avvenuto assumendo rischi eccessivamente elevati. Il capitolo, pertanto, contribuisce all’ampio dibattito in letteratura riguardo ai potenziali effetti distorsivi causati dalla struttura di remunerazione dei manager

This study investigates the relationship between CEO pay and firm performance, the asymmetric nature of pay-performance sensitivity, and the effect of CEO participation on the pay-setting process, for publicly-listed New Zealand firms during 1997 to 2002. The research is conducted using a unique hand-collected panel data set containing information about executive compensation, firm performance, ownership, firm governance and CEO participation in the pay-setting process. The sample covers the six-year period following the introduction of mandatory disclosure requirements that were imposed on executive and director compensation in 1997. An initial descriptive analysis of the data reveals a large pay difference between worker and CEO pay. In addition, pay-performance indexes for the highest and lowest paid CEOs document differences between the change in pay relative to real shareholder returns. An examination of the sensitivity between growth in CEO pay, and contemporaneous and lagged firm performance using a firm fixed-effects model, shows that not only is pay significantly related to firm size and performance but also board size, compensation risk and director share ownership. Models of the relationship between growth in CEO compensation and firm performance indicate the pay-performance sensitivity generated by cash and the change in the value of stock option holdings is reported to be three-times the magnitude of the sensitivity due to salary and bonus payments alone. In addition, growth in CEO compensation is asymmetrically related to changes in firm performance. CEO cash compensation is positively related to increases in firm value only. Total compensation is related to contemporaneous returns and positive lagged returns. Change in CEO wealth is positively related to contemporaneous returns but is more sensitive to losses. However, change in wealth also increases when lagged returns are positive and negative, implying that CEOs are able to extract pay in excess of that which is optimal under the contracting view of executive compensation. Furthermore, firms in which CEOs demonstrate a low level of participation in the pay-setting process earn higher levels of pay, which also grows at significantly greater rates than their high-participation counterparts. In particular, growth in low-participation wealth is more sensitive to positive and negative contemporaneous returns as well as being negatively related to negative lagged excess returns. This finding is opposite to theoretical predictions and can be explained by the tightly held nature of the high-participation firms which typically have fewer directors, are exposed to higher return volatility and have greater director and CEO beneficial share ownership. Consistent with the trickle-down effect, there is a positive relationship between growth in the non-performance related cash compensation awarded to CEOs and the growth in pay earned by their executive directors and employees. In addition, growth in non-CEO executive pay is not related to firm performance when there is an overpayment effect and CEOs exercise a high level of participation in the pay-setting process. Consistent with the contracting view, growth in non-CEO executive pay is positively related to firm performance with no benefits from CEO overpayments when stock option awards are included in the CEO pay contract.

This study considers the determination of the ex ante pay-performance relationship. A single-period partial equilibrium model is used to show that the executive income can be expressed as a function of the firm's return expressed in dollar terms. The executive income is jointly determined by the opening firm size and current return, which function as a managerial talent proxy and self-selection mechanism respectively. Comparing to Jensen and Murphy (1990) wealth-based Pay-Performance Sensitivity (PPS), this research presents an income-based PPS. The alternative PPS not only overcomes a misleading misspecification in Jensen and Murphy (1990), but also corrects Rosen's (1992) argument for only including return in the pay performance relationship. This research finds empirically that both the opening firm size and stock return play a significant role in determining executive income. This study provides supplementary evidence to Murphy's (1986) Learning Model. However, shareholder income may not be an ideal performance measure in capturing the multi-period pay-performance relationship.

This thesis investigates three theoretical problems in executive compensation literature. They involve extension of a standard principal-agent model, incorporating taxation into the valuation of executive stock options, and the pricing of executive stock options in the presence of managerial effort. Empirical literature has long addressed the endogeneity of capital structure and executive compensation. Yet few models, which optimally determine executive compensation, explicitly introduce capital structure choice. Chapter 2 proposes a principal-agent model in which the capital structure, compensation and managerial actions are simultaneously determined. Based on our numerical results leverage has two effects on managerial actions. One is to discipline the manager and the other is to replace the incentive effect of compensation. Two such effects exist because volatility is chosen by the manager. The basic model is also extended to include debt-like compensation. Our results show that for a given leverage level, rewarding the manager with debt makes her work harder but take less risk. But debt compensation cannot limit risk neutral shareholders' risk appetite; we hence conclude that only a combination of capital and pay regulation, which restricts both risk-taking of shareholders and incentives of the manager, can significantly reduce the firm's risk. Taxation is an important consideration in the design of executive (and employee) compensation. It directly affects the firm's revenue as well as the executive's after tax income. Once the compensation is granted, taxes also affect the early exercise strategy of the components of the compensation. Chapter 3 explores the executive (and employees) compensation with tax. Specifically, we build a tax-inclusive valuation model. The new feature of the model is an addition of a tax decision, which allows the executive (and employees) to optimally sell stock to maximize after-tax terminal utility. The stock selling decision is very similar to an option exercise decision. The valuation 'model essentially has two embedded options: one option is when to exercise the stock option and the other option is when to sell the stock. This new feature allows different exercise policies for executive stock options under different tax schemes. We apply the model to the US and the UK tax system. The findings suggest that restricted stock is the preferred form of compensation in the US. In the UK, restricted stock is only preferred when the executive has low wealth. We also investigate incentives of a special tax scheme - section 83b election - which gives employees a choice to pay income tax at grant date. This voluntary election allows the executive to accelerate ta.x on restricted stock. Our results suggest that 83b election is not optimal for the manager, who would get double-taxed. And it is not optimal for the issuing firm either, as restricted stock without the election can provide higher incentives at lower cost. The value of executive stock options (ESOs) should depend on the manager's ability to influence firm value. ESOs are granted under the assumption that the executive could make the firm value increase. However, ESOs are always valued with no managerial influence. Chapter 4 examines valuation of ESOs, with the assumption that the manager can influence the firm value via her effort choice. The manager influences stock prices by exerting effort, which increases the firm's stock expected return. Effort leads to a disutility (which can be regarded as effort cost) to the risk-averse, utility-maximizing manager. In addition to the effort choice, the market asset. is also introduced to the manager's investment set. Effort increases the manager's subjective valuation as well as the cost of ESO. The standard principal-agent model is not strictly speaking consistent with general equilibrium models like CAP1vI. Managerial effort is generally not priced under these equilibrium models, because all managers are pricetakers. For this reason, we assume that CAPM does not strictly hold when effort is introduced. Our results show that the manager's value and the cost increase with the correlation, because the manager delays a value destroying early exercise. We also show that the manager's subjective value of the ESO is higher than the cost only when the manager has low wealth, low risk-aversion, and the stock has a low volatility. Under these scenarios, the manager's marginal utility is high and effort has a large impact on the manager's valuation. As a result, the value is higher than the cost. These results suggest that managers of large public firms are less likely to value their ESOs higher than the cost; while managers of small non-public firms are likely to value their ESOs far higher than their cost. The result may explain why ESO is so popular in small startup firms, where ESO is most likely to be valued higher than the cost.

This dissertation consists of two essays, both co-authored with Ugur Lel. The first essay (Chapter 1) examines whether high CEO pay inequality (CPI), the share of total managerial pay captured by the CEO, is an outcome of poor corporate governance, and its implications for shareholder wealth. We exploit the 2002 NYSE and NASDAQ governance reforms that mandated firms to have majority independent boards as a quasi-exogenous source of variation in the internal governance environment of firms. Results show that CPI decreases following the passage of these exchange listing regulations, but only in firms with entrenched CEOs affected by the exchange listing regulations. Firm value also increases for these firms. These results are robust to a variety of robustness checks such as a matched sample analysis and placebo tests. Overall, our results suggest that poor governance environments are associated with high managerial pay differences and consequently lower firm valuations, supporting the view that high CEO pay inequality reflects managerial entrenchment. The second essay (Chapter 2) examines whether shareholders use executive compensation channel to align managerial horizon with their investment horizon. We utilize a newly emerged empirical measure, pay duration, to measure managerial horizon. For shareholder horizon, we use the fraction of long-term institutional ownership in the firm. Results show that there is a positive association between long-term institutional ownership and CEO pay duration, suggesting that shareholder horizon is a determining factor in compensation contracts. We address reverse causality using indexer institutions. We also establish a causal link from investor horizon to CEO pay duration using institution mergers as a source of exogenous variation in investor horizon of the firm. We extend our results to hedge fund activism and document a negative relation between hedge fund activism and pay duration, which is consistent with our argument. Overall our results suggest that shareholders structure CEO pay in a way that is consistent with their investment horizon.
Ph. D.

Thesis (Ph. D.)--Southern Illinois University Carbondale, 2009.
"Department of Finance." Keywords: Agency theory, Executive compensation, Mergers and acquisitions, Spin-offs. Includes bibliographical references (p. 81-86). Also available online.

Thesis (Ph. D.)--University of Oregon, 2005.
Typescript. Includes vita and abstract. Includes bibliographical references (leaves 69-71). Also available for download via the World Wide Web; free to University of Oregon users.

L'obiettivo della tesi, attraverso uno studio critico e storico, è stato quello di indagare sulla presenza o meno, nelle aziende italiane, di sistemi incentivanti a favore dello sviluppo della responsabilità sociale d'impresa. In fase introduttiva si è sviluppato un piccolo compendio storico in merito alla CSR e alla sua trattazione in letteratura aziendale. Si è cercato poi di capire quali sono le metodologie più ampiamente utilizzate per adottare un sistema incentivante legato a obiettivi prestabiliti, studiando i punti di forza e di debolezza del corrispondere premi, sia di tipo economico che non. Nella parte finale della tesi vengono approfonditi alcuni esempi empirici presenti nella letteratura manageriale e, attraverso una ricerca empirica appositamente svolta, si è indagato sui comportamenti di alcune delle più virtuose aziende italiane quotate in borsa, ricercando il nesso tra CSR ed executive compensation.

Esta tesis consiste de tres ensayos. En el primero, documentamos la correlación imaginaria entre las decisiones de compensación de los ejecutivos (CEO) al demostrar que el hándicap de los ejecutivos que juegan al golf no está correlacionado con su desempeño en la empresa mientras que sí lo está con su compensación. Los golfistas ganan más que los que no juegan al golf, y las pagas se incrementan con la habilidad en este juego. En el segundo ensayo explicamos la reciente espiral de las compensaciones de los ejecutivos basados en el sesgo de atribución fundamental. El análisis de las series temporales agregadas y de datos de sección cruzada correspondiente a la burbuja del mercado accionario en los noventa sugiere que los accionistas exageran al atribuir las subidas y bajadas de los precios de las acciones corporativas a las aptitudes de liderazgo del ejecutivo mientras que subestiman el rol de las fluctuaciones del mercado accionario que se encuentran fuera del control de estos. En el tercer ensayo demostramos que un gran número de Ofertas Públicas Iniciales predice sistemáticamente, tanto dentro como fuera de la muestra, el subsiguiente bajo rendimientos agregado y ponderado, y la diferencia de rendimientos entre las pequeñas y grandes firmas.
This thesis consists of three essays. In the first, we document illusory correlation in CEO compensation decisions by demonstrating that golf handicaps of CEOs are uncorrelated with corporate performance, but related to CEO compensation. Golfers earn more than non-golfers and pay increases with golfing ability. In the second essay we propose a fundamental attribution bias-based explanation of the recent explosive growth in CEO pay. Analysis of aggregate time series data and cross sectional data from the late 1990s stock market bubble period suggests that shareholders overattribute prominent increases and decreases in the prices of corporate stocks to the leadership and skill of the CEOs and underestimate the role of stock market fluctuations that are beyond CEO control. In the third essay we show that increases in the number of Initial Public Offerings reliably predicts in-sample and out-of-sample decreases in subsequent equally weighted aggregate stock returns and the return differential between small and big firms.

The results obtained from this research indicates that there is no statistical relation between the chosen financial variables and the total compensation to the CEO, except sales.

CEO compensation is a highly debated subject in Sweden. The debate concerns whether or not CEOs are paid too much in relation to their results. This research investigates what decides the CEO compensation. Can the CEO compensation be explained by the financial variables ROA, ROE, Sales, Tobin’s q, and the size of the largest shareholder?

In this paper companies listed on the Swedish Stock Exchange OMX Stockholm large and mid cap during the years 2003 to 2008 are analyzed by empirically and theoretically adapted models.

Previous research in organizational theory, labor market economics, and nonprofit studies are applied to churches and their clergy leadership in advancing a theory of clergy executive compensation. The data for this study come from the end of year reports from approximately 800 local churches of the North Georgia Annual Conference of the United Methodist Church for the years 2007-2008 and a survey administered in order to glean the personal characteristics of the clergy. The investigation employs a clergy compensation framework and finds that clergy salaries are influenced in part by personal characteristics, human capital, organizational elements, labor market factors, and clergy performance. The results regarding the role of credentialing in stratified labor markets have implications for policy. The present research adds to the nonprofit executive compensation literature by suggesting that denominational churches are analogous to nonprofit franchises and by empirically testing for "dual agency", labor market stratification, and managerial scope.

Previous research in organizational theory, labor market economics, and nonprofit studies are applied to churches and their clergy leadership in advancing a theory of clergy executive compensation. The data for this study come from the end of year reports from approximately 800 local churches of the North Georgia Annual Conference of the United Methodist Church for the years 2007-2008 and a survey administered in order to glean the personal characteristics of the clergy. The investigation employs a clergy compensation framework and finds that clergy salaries are influenced in part by personal characteristics, human capital, organizational elements, labor market factors, and clergy performance. The results regarding the role of credentialing in stratified labor markets have implications for policy. The present research adds to the nonprofit executive compensation literature by suggesting that denominational churches are analogous to nonprofit franchises and by empirically testing for "dual agency", labor market stratification, and managerial scope.

This item is only available in print in the UCF Libraries. If this is your Honors Thesis, you can help us make it available online for use by researchers around the world by following the instructions on the distribution consent form at http://library.ucf.edu/Systems/DigitalInitiatives/DigitalCollections/InternetDistributionConsentAgreementForm.pdf You may also contact the project coordinator, Kerri Bottorff, at kerri.bottorff@ucf.edu for more information.
Bachelors
Business Administration
Finance

This dissertation presents empirical evidence intended to help answer two research questions. The first question asks whether executive compensation systems appear to exploit the bias in accounting-based performance measures in order to reduce the volatility in executive compensation and to allocate incentives more effectively across the range of activities performed by the executive. The second question asks whether compensation systems systematically differ between firms that use alternative accounting methods and whether any such systematic difference helps explain accounting choice. Parameters estimated in fixed-effects endogenous switching regression models were used to test the risk-shielding and incentive-allocation hypotheses. The models were estimated across a dataset consisting of 1151 executive-year observations of annual compensation paid to 222 top-level executives in 40 oil and gas firms. The dataset was partitioned by accounting method and separate models estimated for the full cost and successful efforts partitions. The tests provided modest support for the risk-shielding and incentive-allocation hypotheses, revealing that accounting measurement bias is used to focus incentives for effort in the exploration activity and to reduce executives' exposure to production risk. The design also allowed an estimate of the proportional change in compensation that was realized from the accounting choice actually made.

The contemporary executive career looks different from the “company man” era of post World War II. At that time, executives rose almost exclusively within a single firm, learning the business over many loyal years of service. Since the 1970s, firms have progressively relied more on external markets for filling its leadership ranks. As a result, the value of executives has become increasingly defined by capabilities portable across organizational settings. External markets have less information about executive abilities compared to incumbent employers, which strengthens the influence of externally observable signals of quality on executive career opportunities and compensation. Across three studies, this dissertation empirically explores how external markets value executive human capital attributes. In particular, this work focuses on how external markets differ from incumbent employers and explores implications for executives building their careers across multiple organizations.

Business Administration/Accounting
D.B.A.
This dissertation contains three studies relating to executive compensation clawback policies. In the first study (Chapter 3), I investigate the relation between voluntary clawback adoption and shareholder satisfaction. I find that various measures of shareholder dissatisfaction are associated with an increased likelihood of initial clawback adoption and, for firms that already have one in place, an increased likelihood of clawback enhancement. When investigating the impact of clawbacks on shareholder dissatisfaction, measured with say-on-pay (SOP) voting dissent, I find voting dissent is reduced when clawbacks include a reporting-focused trigger. I also find partial evidence that clawbacks reduce SOP voting dissent associated with abnormal CEO compensation, suggesting that shareholders assign greater value to the clawback policy as the value of abnormal compensation increases. In Chapter 4, I examine the relation between earnings quality and variations in the features of clawback policies: the types of trigger events, the executives covered, the amount of compensation subject to clawback, and board discretion in clawback enforcement. The results suggest that earnings quality increases when clawbacks contain reporting-focused triggers and that more automatic clawbacks improve perceptions of reporting quality. In Chapter 5, I examine the relation between mandatory clawbacks, which are required for firms participating in the Troubled Asset Relief Program (TARP), and both observed earnings quality and perceptions of earnings quality. The findings suggest that mandatory clawbacks are associated with improvements in auditor’s perceptions of reporting quality. However, they are also associated with a greater likelihood of financial restatement, indicating that government mandated clawbacks may reduce the quality of earnings. The results of these studies may be of interest to regulators as they work towards the final rules governing mandatory clawbacks under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Temple University--Theses

The three-study thesis examines relative performance evaluation (RPE) in executive compensation contracts. Study 1 examines the determinants of RPE and finds that firms’ intra-industry performance ranking dictates the effective use of RPE in compensation contracts. Study 2 examines how executives achieve RPE performance targets and finds that peer firms’ analyst following facilitates executives’ achievement of RPE performance targets. Study 3 examines the consequences of RPE and finds that, in the presence of strong peers, firms shirk by providing less readable annual reports. The thesis significantly contributes to the literature, and has important practical implications for investors, practitioners, regulators and policymakers.

The focus on sustainability has become more noticeable during recent years. This is especially evident in the Nordics, were Sweden, Norway, Denmark and Finland tops the sustainability rankings. Moreover, several studies have been conducted surrounding the topic of the sustainability measuring ESG-scores and their relation to financial performance. Simultaneously, researchers have come up with controversial findings regarding the relationship between financial performance and executive compensation. This study aims to find out the relationship between sustainability and senior executive compensation in the Nordics, as well as how they are both connected to financial performance. In order to fulfill this, eight multiple regression models were created on a sample of 101 Nordic companies. The chosen dependent and independent variables comprised various ESG-scores, as well as a ratio of senior executive compensation divided by total revenue. This resulted in 895 different observations during the years 2008 to 2017. This is a quantitative study following the positivist paradigm. Moreover, a deductive approach is taken in regard to how theory is used. Theories used to make conclusions include the stakeholder theory, the shareholder theory, the legitimacy theory, the agency theory and the stewardship theory. The regression models of choice were the OLS model and the OLS robust model, depending whether the models fulfilled the assumption regarding heteroscedasticity. The findings showed no significant relationship between the ESG combined score and the senior executive compensation ratio in the Nordics. However, a significant negative relationship between the compensation and the social and environmental scores could be found. Moreover, the governance-score was the only ESG-score to indicate a positive relationship with senior executive compensation. Conclusions could be made that there is a negative relationship between senior executive compensation and sustainability factors such as emission reduction and employment quality. This finding is in favor for the shareholders, but not the stakeholders. Additionally, there is a positive relationship between senior executive compensation and good governance. This includes factors such as a high score regarding board structure, shareholder rights and CSR strategy. It could also be concluded that good governance has an indirect positive impact on financial performance. Furthermore, the findings question previous arguments that executive compensation is an agency cost, rather than a solution of the agency problem.

The compensation of chief executive officers has long been an alluring and controversial topic, especially in light of the rapid rise in CEO earnings over the past several decades, which has provoked discussion on the manner in which CEOs are monetarily rewarded. Recently, university presidents have joined company CEOs in the public spotlight, as increasing levels of compensation for college presidents have also sparked scrutiny and debate. This paper examines the determinants behind CEO compensation and investigates the extent to which insights on these factors compare to the compensation determinants of chief executives at universities. Ultimately, this study finds similarities between the determinants of compensation for these two executive groups, specifically in the significance of organization size, type, and performance, as well as personal executive characteristics such as gender and tenure. The findings therefore suggest that these executives have similar job responsibilities, and the results also possess important insights and applications to relevant issues regarding executive compensation.

In the middle of the financial turmoil, many managers are blamed by journalists or politicians to be responsible for the crisis. For unknown reasons, this crisis born elsewhere than in large quoted companies, has struck top executives and CEOs, accused by an angry public to benefit from excessive compensations. However this wave of protest has highlighted the field of executive compensation and sparked the academic debate regarding the determinants of executive pay, with a particular focus on the relation between pay and performance.

 

In this paper we discuss the role and attributes of executives, their remuneration schemes and the trend evolution in terms of package components and overall amounts. To delimit our study, we focus on the Anglo-American model only; the most criticized one, especially because of the important part covered by stock options. We conduct a theory review to provide a clear understanding of what executive compensation is and the impact it can have on the performance and long-term value creation. To help us achieve this, we use the agency theory, explaining the relationship between the agent, being the executive, and the principal, being the shareholder. We aim at determining whereas there is a un-balance in the power distribution, linked to a managerial power increase. Trough a case study about Bank of America, we study the protests around executive pay, before concluding and questioning ourselves about the economic sense of compensation packages.

 

 

Business Administration/Accounting
Ph.D.
This dissertation investigates the structure of incentive contracts in which adverse selection problems are more severe. Specifically, I examine the moderating effect of R&D intensity on the relative weights placed on signals of ability and on performance measures in executive compensation. Furthermore, I also investigate the determinants on the compensation of university presidents. I find that that more weight is placed on signals of ability in R&D intensive firms and less weight is placed on performance measures. I find that R&D intensive firms pay more to executives with technical work experience and/or relevant educational degrees. Additionally, in the context of university presidents, the positive association between organizational complexity and executive compensation is driven by the role of managerial ability rather than by effort. This result also suggests that considering measures of organizational complexity (such as firm size and diversification) as control variables in empirical studies of executive compensation is the appropriate means by which to account for the impact of organizational complexity.
Temple University--Theses

Business Administration/Accounting
Ph.D.
Managers have shorter investment horizons than well-diversified shareholders for various reasons such as the threat of managerial turnover arising from takeovers, risk aversion, liquidity constraints, and the need to access capital markets. Such myopic managerial behaviors are affected by various factors including monetary incentives and internal/external monitoring by board of directors or active shareholders. In this dissertation, I first provide empirical evidence that myopic behaviors of managers are affected by their compensation structure. Using a sample of 23,107 firm-year observations from 1993-2014 for firms in the S&P 1500 index, I show that the asymmetric cost behavior called cost stickiness is 1) weaker when CEOs are compensated relatively more in the form of annual cash bonus, and 2) stronger when they receive relatively more long-term compensation. I also show that the magnitude of analysts’ earnings forecast bias created by cost stickiness also decreases with CEO’s short-term cash bonus and increases with long-term compensation. Next, I show how corporate governance affects managerial decision horizon directly and indirectly through executive compensation. Using a sample of 7,639 firm-year observations from 1999-2011 for firms in the S&P 1500 index, I show that board characteristics such as board independence and CEO-chairman separation induce more R&D investments not only directly but also indirectly by encouraging more use of long-term compensation and thus extending managerial decision horizon.
Temple University--Theses

The agency theory literature implies the pay-performance based managerial compensation can relieve the agency problem between shareholders and managers. As the interests of shareholders and managers are aligned, managers have incentive to invest in best projects and hence to improve firms’ performance. While the use of equity compensation to managers may reduce the agency cost between managers and shareholders, its impact on agency cost of debts is ambiguous. On the one hand, a large portion of equity compensation discourages risk-averse managers to invest in risky investment and hence reduce the credit risk. On the other hand, while the equity compensation brings the interests of managers in alignment to shareholder it may encourage managers to take opportunistic corporate strategies and to exploit the wealth of creditors. As a result, creditors may response to the CEO compensation package by imposing different covenant restrictions according to their perception of the credit risk. Supported with empirical evidence, this research finds that loan agreement contains more restrictive covenants if the firm’s CEO has a higher portion of option compensation to the total compensation, but contains less restrictive covenants if the firm’s CEO has a higher portion of stock compensation to the total compensation. It implies that creditors view that the increase in the use of option compensation would increase the credit risk of the firm, while the increase in the use of stock compensation would decrease the credit risk. This research also investigates the relation between the CEO option compensation and some specific financial covenants. The finding shows that the use of liquidity covenant and minimum net worth covenant is positively related to the CEO option compensation.

O objetivo desse estudo é identificar as práticas de remuneração adotadas para os executivos no Brasil e medir a relação entre a performance das companhias e a remuneração desses executivos. Ao analisar a relação entre remuneração dos executivos e a performance das companhias, deveríamos observar uma relação positiva e estatisticamente (e economicamente) significante entre as duas variáveis, caso a elaboração dos contratos de remuneração dos executivos endereçassem os problemas mencionados na teoria do Agente-Principal. Foram utilizadas diversas regressões para medir a sensibilidade entre a remuneração dos executivos e a performance das companhias. Podemos observar pelos resultados que, em algumas das regressões encontramos uma relação estatisticamente significante entre a remuneração dos executivos e a performance da companhia a um nível de significância de 5 por cento, no entanto, com um significado econômico muito baixo, o que parece inconsistente com o problema do Agente-Principal.
This paper seeks to identify and describe the executive compensation practices in Brazil, and measure the relationship between company performance and executive compensation in Brazil. When analyzing the relationship between executive compensation and company performance, we should observe a positive and statistically (and economically) significant relation between the two variables, in case the compensation contracts addressed the problems involved in the Principal-Agent theory. Several regressions were used to measure the sensibility between executive compensation and company performance. In some of the regressions we found a statistically significant relation between executive compensation and company performance at a 5 percent significance level, but not economically significant, which seems to be inconsistent with the Principal-Agent theory.

Corporate governance, and the role of executive pay in particular, has received increased attention from the media, government, and the business arena in recent years. The study reported in this thesis adds to our understanding of both the components and determinants of Australian remuneration packages for the top management team. It does so in four main ways: 1. The study examines the determinants of compensation of a range of senior executives within the organisation, in addition to the CEO. No Australian research, to date, explores the structure and determinants of remuneration beyond the CEO; 2. The research is conducted in a contemporary setting and timeframe, where corporations are subject to expanded disclosure requirements, when compared to the subjects of prior Australian research; 3. It examines an expanded range of factors documented in overseas research as likely to relate to remuneration, some of which have not been previously examined in Australian work; 4. Finally, in developing hypotheses concerning factors expected to relate to remuneration, the study reconciles the perspectives provided by both agency and managerial power theories in terms of how they present similar and differing propositions. The research examines both cash and incentive components of executive compensation disclosed by a sample of top 300 Australian companies in 2005. The model incorporates measures of firm performance, economic characteristics, board monitoring and governance characteristics, and ownership characteristics in an attempt to explain the level of executive compensation. The study extends analysis beyond the CEO to incorporate an investigation of both the structure and determinants of compensation of the top five executives, in addition to the CEO. Results indicate that the structure of CEO compensation has changed since prior Australian research was conducted, to include a more heavy reliance on incentive pay. In contrast to the US, the structure of CEO remuneration differs from that of non-CEO executives. As managers move progressively up the senior executive hierarchy, short-term cash bonus and share-based incentive pay both become more important as components of remuneration. There is also a greater reliance on performance hurdles than has been documented in prior Australian and international research. The expectation that remuneration is now more strongly tied to firm performance is supported. The size and complexity of the firm are also considered to be important in determining the level of various components of both CEO and non-CEO executive compensation. This supports the view that larger, more complex entities attract higher quality executives, and pay for such quality and expertise. Growth firms are more likely to pay higher levels of incentive pay and total compensation to CEOs than non-growth firms. Executive remuneration also relates to the strength of various monitoring and governance mechanisms, although to a greater extent for CEOs than for other senior executives. Managers are able to influence the remuneration-setting process where governance structures are weak, or where they have greater influence. In some cases factors relating to CEO compensation differ from those associated with compensation of lower-level executives.

Abstract A major proposition of the agency theory is that the conflict of interests between an agent and a principal is reduced when the agent’s wealth and compensation are tied to the performance of the firm. Apart from the direct predicted relation to corporate performance, compensating managers with equity instruments has implications for corporate risk-taking and payout policy choices. Additionally, equity-based compensation practices are to a large extent shaped by institutional factors, such as accounting regulations. This dissertation seeks to enhance our understanding of the determinants and implications of equity-based compensation and equity-based ownership of public companies’ executives through four interrelated essays. First, the dissertation re-examines the performance and risk-taking consequences of executive equity-based compensation and equity ownership using novel approaches. Second, the dissertation studies the side effects of equity-based compensation and the ways in which companies respond to the accounting regulations in the area of equity-based compensation. The empirical results of the first essay show that CEO’s equity incentives are economically more significant when measured relative to her outside non-firm wealth rather than relative to the total market value of the firm. These results also suggest that there is a positive relation between CEO’s equity incentives measured relative to her outside wealth and future accounting performance. The second essay reports that executive risk-taking incentives resulting from stock options holdings are significantly positively related to the degree of risk a firm takes when offering its customers trade credit. The third essay provides empirical evidence that companies engage in timing equity grant dates before the release of favorable earnings news in order to minimize the subsequent compensation expense. The fourth essay documents an inverse relation between the executive cash dividend receipts resulting from the holdings of equity and the level of current cash compensation of CEOs, and suggests that equity ownership is indirectly interrelated with the structure of cash compensation via dividends. Collectively, the results of the dissertation are of interest to shareholders of public companies, executive compensation consultants and boards of directors
Tiivistelmä Agenttiteorian mukaan agentin ja päämiehen intressien ristiriita pienenee, kun agentin varallisuus ja palkkaus on sidottu yrityksen suorituskykyyn. Tämän suoran vaikutuksen lisäksi ylimmän johdon osakesidonnainen palkitseminen vaikuttaa sekä yrityksen riskinottoon että voitonjaon muotoon. Institutionaaliset tekijät, kuten tilinpäätöstä koskevat säännökset, vaikuttavat myös yritysten osakepohjaisten palkitsemiskäytäntöjen muotoutumiseen. Tämän väitöskirjan tarkoituksena on lisätä ymmärrystämme pörssiyritysten ylimmän johdon osakepohjaisista palkitsemisjärjestelmistä ja osakeomistuksiin johtaneita syitä ja niiden seurauksia neljän osatutkimuksen avulla. Väitöskirjassa tarkastellaan ensinnäkin osakepohjaisten palkitsemisjärjestelmien ja osakeomistusten vaikutuksia yritysten suorituskykyyn ja riskinottoon lähestymällä kysymystä uudella tavalla. Toiseksi väitöskirja tarkastelee osakepohjaisten palkitsemisjärjestelmien sivuvaikutuksia ja yritysten reagointia palkitsemisjärjestelmiä koskeviin säännöksiin. Ensimmäisen osatutkimuksen empiiristen tulosten mukaan toimitusjohtajan osakekannustimet ovat taloudellisesti merkittävämpiä silloin, kun ne on mitattu suhteessa toimitusjohtajan varallisuuteen sen sijaan, että ne olisi mitattu suhteessa yrityksen markkina-arvoon. Tulosten mukaan toimitusjohtajan osakekannustimien ja yrityksen tulevan kannattavuuden välillä on positiivinen suhde. Toisen osatutkimuksen tulosten mukaan ylimmän johdon osakeoptioiden riskinottokannustimet lisäävät yrityksen riskinottoa asiakasluotoissaan. Kolmas osatutkimus antaa empiiristä näyttöä siitä, että yritykset ajoittavat osakeluovutuspäivät minimoidakseen palkitsemiskustannuksia tilinpäätöksissään. Neljännessä osatutkimuksessa havaitaan käänteinen suhde toimitusjohtajan käteisosinkojen ja -palkan välillä, mikä viittaa siihen, että osakeomistus ja käteispalkan rakenne ovat epäsuoranaisesti yhteydessä toisiinsa osinkojen kautta. Kokonaisuudessaan väitöskirjan tulokset ovat mielenkiintoisia pörssiyritysten osakeomistajille, yritysjohtajien palkitsemisneuvonantajille sekä yritysten hallituksien jäsenille

The topic of executive compensation has recently emerged as a legitimate field for academic study. The rapid growth in publications has almost been matched by the well-publicised growth in CEO remuneration. From the time of the first utility privatisation in the UK, right up to current day, the topic of board room pay has rarely been out of the news headlines or the academic journals. This thesis makes several new contributions to the executive compensation literature, primarily by providing an in depth analysis of the executive option holdings of directors in the UK. Data on this aspect of executive compensation has until recently been unavailable and as such this thesis represents the first work in the UK to fully incorporate this element of remuneration for a large sample of companies. Executive options have become an increasingly significant component in executive compensation, yet their valuation and the incentive effects they create are relatively poorly understood. This thesis attempts to undo these shortcomings by providing a thorough analysis of the determinants and consequences of the level of option information disclosure. Furthermore, it develops the rational for granting executive options and describes the creation and distribution of the pay for performance sensitivities created by holdings of executive options. Finally, it deals with valuation issues that are particular to executive options.

Executive compensation has raised, over the years, interest not only in the international community, but also in researchers who try to understand which factors are behind this “phenomenon”. Is compensation of executives structured to encourage risk taking? Why do CEOs receive higher compensation than other employees and a wide range of benefits? In this paper, the main goal is to answer these questions, by analysing executive compensation in banking, throughout a sample of the financial industry in the United States of America. In the end, it will be possible to conclude about a likely relationship between executive compensation and firm characteristics, as well as features of bank executives.
A compensação de executivos tem suscitado, ao longo dos anos, muito interesse por parte não só da comunidade internacional mas também por parte de estudiosos, que procuram entender que efeitos estão por detrás deste “fenómeno”. Será que a compensação dos altos quadros das empresas está estruturada para promover a tomada de risco? Porque razão os CEO recebem valores tão elevados e tantos benefícios? Ao longo deste trabalho, procura-se responder a estas questões, analisando a compensação de executivos na banca, através de uma amostra do sector financeiro dos Estados Unidos da América. No final, será possível aferir sobre a eventual relação entre a compensação de executivos e as características da empresa, bem como as características dos executivos dos bancos.

碩士
東吳大學
會計學系
105
This paper examines the relationship between executive compensation and earnings management. The research sample includes all listed firms in Taiwan capital markets between year 2013 to 2015. The measures of the executive compensation, the accrual earnings management and the real earnings management follow the method developed by Albuquerque (2014), Kothari et al. (2005) and Roychowdhury (2006) and Cohen et al. (2008). In order to test the executives using both accrued earnings management and real earnings management and considering the problem of endogenous variables in executive compensation and earnings management, a regression model of two-stage least squares (2SLS) is established. It is difficult to explain the complete earning management activities with only one single management tool to know whether the executives will manipulate the surplus for their own salary. Therefore, this study explores how the executives use different kinds of management tools for earnings management, and analyzes their relationship to the executives. When the executives use the earnings management tool, the empirical results show that the executive compensation and accrued earnings management are not significantly related. On the other hand, executive compensation and real earnings management showed a negative correlation, showing higher-level executive compensation higher, the lower the degree of real earnings management.

Paul Joskow, Nancy Rose, Andrea Shepard.
"Prepared for the Brookings Microeconomics Conference, December 11-12, 1992."
Includes bibliographical references (p. 53-55).
Supported by the MIT Center for Energy and Environmental Policy Research, the Olin Foundation, the National Science Foundation and a Sloan Foundation Fellowship.

This paper analyzes the link between equity-based compensation and created incentives by (1) deriving a measure of incentives suitable for both linear and non-linear compensation contracts, (2) analyzing the effect of risk on incentives, and (3) clarifying the role of the agent's private trading decisions in incentive creation. With option-based compensation contracts, the average pay-forperformance sensitivity is not an adequate measure of ex-ante incentives. Pay-for-performance covaries negatively with marginal utility and hence overstates the created incentives. Second, more noise in the performance measure implies that the manager is less certain about the effect of effort on performance, which in turn makes her less willing to exert effort. Finally, the private trading decisions by the manager have first-order effects on incentives. By reducing her holdings of the market asset, the manager achieves an effect similar to "indexing" the stock or option grant, making explicit indexation of the contract redundant.

This dissertation explores the role of executive compensation in determining the capital structure decisions of a firm. CEOs experience a large personal cost of default that interacts through the risk adjusted probability of default with their compensation contract. Since default happens in a particularly costly state of the world for a CEO whose compensation contract consists primarily of pay for performance elements, i.e. a CEO who has a large personal equity stake in the firm, a large pay performance sensitivity is negatively and significantly associated with firm leverage choice. I document this effect in detail for the first time, and I show that it is both statistically robust and significant in magnitude, approximately 1\% of firm value. I show that this effect is driven by the stock holdings of the CEO, not the option holdings. I provide a simple principal agent model that explains the observed negative relationship and makes additional predictions on the relationship of other firm characteristics to pay performance sensitivity and leverage. I then test and confirm these predictions empirically using a standard OLS framework and an instrumental variable approach to control for endogeneity in the compensation contract. I also look at leverage adjustment speeds and show that CEOs with higher pay performance sensitivity adjust leverage upwards towards target values more slowly and downwards more quickly than their peers, and I interpret this as direct evidence that CEOs are actively managing personal risk through firm leverage choice.

Dissertation

碩士
國立中央大學
財務金融學系
102
In this essay we investigate whether companies take into account market sentiment when designing compensation contracts for their top managers. Since the value of equity compensation depends on the market price of shares, in order to make their compensation policy efficient, firms may have to makes adjustments when investor sentiment is high and the share price is deviant from its fundamental value. With a sample of 9,202 managers in 1,344 Taiwanese companies, we document two important findings. First, stocks indeed are more likely to be over-valued when investor sentiment is high. Second, companies in Taiwan do actively manage their compensation policies. We find that CEO pay is correlated with operating performance to a greater extent and correlated with stock performance to a lesser extent when sentiment is high, indicating firms take into account sentiment when choosing the CEO performance measures. Our evidence is in support of the view that Taiwanese companies efficiently manage their executive compensation policies and pursue maximal shareholder value.