Asymmetric sensitivity of CEO cash compensation to stock returns

Leone, Andrew J.; Wu, Joanna Shuang; Zimmerman, Jerold L.

doi:10.1016/j.jacceco.2006.04.001

Cited by 226 publications

(166 citation statements)

References 40 publications

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“…In terms of firm characteristics, company size and growth opportunities were considered. Total assets are used as a proxy for firm size and market value ratio as a proxy for growth opportunities (Core & Guay, 1999;Leone, Wu, & Zimmerman, 2006;Carter, Lynch, & Tuna, 2007;Shaw & Zhang, 2010;Bulan, Sanyal, & Yan, 2010;Ozkan, 2011). For the industry category, the first two digits of the SIC code are used to divide the sample.…”

Section: Risk Aversion As a Ceo Traitsmentioning

confidence: 99%

CEO Traits, Corporate Performance, and Financial Leverage

Kuo¹,

Wang²,

Lin³

2014

IJEF

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This study uses a random effect panel model to examine the impact of CEO traits and compensation on earnings performance and financial leverage for the 729 listed US companies in ExecuComp over the period of 2001-2010. The results indicate that CEO cash compensation has a negative relationship with earnings performance, but that it has a positive impact on financial leverage. Moreover, for CEOs, longer tenure results in reduced earnings risk-taking for debt financing, but older CEOs generate higher earnings and increase debt capacity. In addition, it is also found that there is a negative relationship between CEO compensation and earnings for firms with poor performance. Cash compensation increases the use of debt for high leverage companies, but equity-based compensation decreases the use of debt for low leverage companies. A longer tenure and greater age also have a negative relationship with both earnings and debt financing for poor performance or low leverage companies. However, older CEOs generate more earnings and financing capacity for firms with good performance or high leverage.

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Section: Risk Aversion As a Ceo Traitsmentioning

confidence: 99%

CEO Traits, Corporate Performance, and Financial Leverage

Kuo¹,

Wang²,

Lin³

2014

IJEF

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“…Since we do not have data on individual executives' cash compensation, the dependent variable LN(CASHPAY) is defined using the average annual cash compensation (including the cash bonus) of the top executives that is required to be disclosed in annual reports (the top three executives for A shares and the top five executives for H and Red Chip shares). Following Ke et al (1999) and Leone et al (2006), accounting performance is measured by ROA, and stock performance is measured by RET. We use both ROA and RET as proxies for firm performance (PERF) because the informativeness of the two measures as indicators of managerial performance could vary across firms and thus the weights on the two measures in our regression could vary across the three types of firms (for example, Larcker 1987, Engel et al 2003).…”

Section: The Level Regressionmentioning

confidence: 99%

Hong Kong stock listing and the sensitivity of managerial compensation to firm performance in state-controlled Chinese firms

Rui

Wei

2011

Rev Account Stud

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We compare the sensitivity of managerial cash compensation to firm performance, the level of long term managerial incentives, and the sensitivity of CEO turnover to firm performance for three types of state-controlled Chinese firms: A shares (firms incorporated and listed in mainland China), H shares (firms incorporated in mainland China but listed in Hong Kong), and Red Chip shares (firms incorporated outside mainland China and listed in Hong Kong). We find no difference in the three pay-for-performance sensitivity measures between H shares and A shares. The cash pay-for-performance sensitivity and the level of long-term managerial incentives are higher for Red Chip shares than for the other two firm types. However, the sensitivity of CEO turnover to firm performance is insignificant for all three firm types. Our study illustrates the complexity in the influence of mainland China's versus Hong Kong's institutional forces on state-controlled Chinese firms listed in Hong Kong.

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“…For example, Murphy (2000) suggests that over 90% of his sample companies use at least one measure of earnings in their annual bonus plan. Firms also link cash bonus awards to stock price performance (Leone et al 2006). Reflecting this, the unexpected component of stock returns U(RET) and the unexpected component of return on assets U(ROA) are typically included in empirical compensation studies.…”

Section: Conceptual Frameworkmentioning

confidence: 99%

“…Following Lambert and Larcker (1987) we define the unexpected component of ROA as the year-onyear change in ROA (i.e., U(ROA)=ROA t -ROA t−1 ). CEO bonuses are also linked to stock returns (Leone et al 2006). As stock returns are serially uncorrelated, unexpected returns are normally proxied by "raw" returns (e.g., Baber et al 1999;Lambert and Larcker 1987).…”

Section: Motivations For Linking Ceo Bonuses To Customer Satisfactionmentioning

confidence: 99%

The impact of customer satisfaction on CEO bonuses

O'Connell

O’Sullivan

2010

J. of the Acad. Mark. Sci.

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In this study, we build on prior research in marketing and executive compensation to show that customer satisfaction is a significant determinant of CEO bonuses. Findings demonstrate that the success of CEOs in managing customer satisfaction has a direct, personal, and economic impact in the form of their annual bonus awards. Our study contributes to research on the use of customer satisfaction information, marketing accountability, and marketing's board level relevance. Our research also extends marketing theory by pointing to a previously unexamined role for marketing performance metrics.

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Asymmetric sensitivity of CEO cash compensation to stock returns

Cited by 226 publications

References 40 publications

CEO Traits, Corporate Performance, and Financial Leverage

CEO Traits, Corporate Performance, and Financial Leverage

Hong Kong stock listing and the sensitivity of managerial compensation to firm performance in state-controlled Chinese firms

The impact of customer satisfaction on CEO bonuses

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