Excessive managerial entrenchment, corporate governance, and firm performance

Antounian, Christelle; Dah, Mustafa A.; Harakeh, Mostafa

doi:10.1016/j.ribaf.2021.101392

Cited by 29 publications

(17 citation statements)

References 66 publications

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“…Bebchuk and Fried (2004) argue that when CEOs have more power over the board of directors, they will be better positioned to negotiate for compensation arrangements that serve in their own favor: higher pay and pay that is less sensitive to their firm's performance. Antounian et al (2021) explain that CEOs gain more control as they get entrenched and, in turn, use this power to extract their own interest and high compensation.…”

Section: The Determinants Of Ceo Compensationmentioning

confidence: 99%

The determinants of CEO compensation: new insights from United States

Bouteska

Mefteh‐Wali

2021

JAAR

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PurposeThe purpose of this paper is to examine the determinants of CEO compensation for sample of the US firms. It emphasizes the presence of executive compensation persistence and the importance of CEO power besides performance while setting CEO pay.Design/methodology/approachThe empirical analysis is conducted on a large sample of US firms during the period 2006–2016. It is based on the generalized method of moments (GMM) models to assess the impact of numerous factors on CEO compensation.FindingsThe main findings reveal that firm performance proxied by accounting-based proxies, as well as market-based proxies, plays a significant role in explaining variations in levels of executive compensation. Moreover, there is a significant persistence in executive compensation among the US sample firms. The authors also document that poor governance conditions (managerial power hypothesis) lead to high compensation levels offered to CEO.Research limitations/implicationsAt the end, without a doubt, the analysis has some limitations that prompt the authors to consider future research directions. One future research avenue that can help better explain the effect of firm performance on the CEO compensation is to study this issue using an international sample to determine whether country-level characteristics (e.g. creditor rights, shareholder rights and the enforcement climate) can influence this relationship. Furthermore, it can be worthwhile to deepen the analysis of CEO power and its impact on CEO compensation. It will be interesting to emphasize how the CEO power interacts with the other governance characteristics and some CEO attributes as CEO gender.Practical implicationsThe paper's findings have implications for practitioners, policymakers and regulatory authorities. First, the findings inform regulators that performance is not the only determinant of CEO pay level. This may warrant increased firm disclosure of the details of the pay structure. Second, the study offers insights to policymakers and members of boards of directors interested in enhancing the design of executive compensation and internal corporate governance, to better align managerial incentives to shareholder interests. Firms should strengthen the board independence and properly constitute the board committees (compensation, risk, nomination…).Originality/valueThis paper presents a comprehensive overview of the CEO compensation determinants. It supplements the classic pay-for-performance sensitivity predictions with insights gained from the dynamics of wage setting theory and managerial power theory. The authors develop a composite index to measure the CEO power in order to test the impact of CEO attributes on CEO pay. Additionally, it verifies whether the determinants of CEO pay depend on firm age and size.

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Section: The Determinants Of Ceo Compensationmentioning

confidence: 99%

The determinants of CEO compensation: new insights from United States

Bouteska

Mefteh‐Wali

2021

JAAR

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“…Enormous studies have been carried out on the issue of creative accounting and corporate governance, and all of these are based on secondary data, even if the application of proxy variables [ [25] , [26] , [27] , [28] , [29] , [30] , [31] , [32] ], except a few ones [ 10 ]. Due to the discretionary accruals measure of creative accounting, known as the Modified Jones Model, past research findings are heavily questioned [ 33 , 34 ].…”

Section: Introductionmentioning

confidence: 99%

Antecedents and effect of creative accounting practices on organizational outcomes: Evidence from Bangladesh

Rahman¹,

Hasan²,

Khan³

et al. 2023

Heliyon

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“…It has been argued, within the context of managerial power theory, in the extant literature that compensation contracts for executives can be manipulated and hijacked by powerful executives. Influential executives often meddle in board politics and affairs to have to say in the determination of their pays (Agrawal & Nasser, 2019; Antounian et al, 2021; Bachmann et al, 2020; Chen et al, 2019; Cho et al, 2019; Choi et al, 2019; Fung & Pecha, 2019; Loyola & Portilla, 2020; Pucheta‐Martínez & Chiva‐Ortells, 2020; Song & Wan, 2019). It implies that compensation contracts for executives usually signal the existence of opportunistic behavior and managerial rent‐seeking activities which subvert the effectiveness of board decisions in designing optimal executive compensation (Bertrand & Mullainathan, 2001; Cho et al, 2019; Conyon et al, 2019; Hoi et al, 2019; Göx & Hemmer, 2020; Olaniyi, 2019; Olaniyi & Olayeni, 2020).…”

Section: Introductionmentioning

confidence: 99%

Do institutional framework and its threshold matter in the sensitivity of CEO pay to firm performance? Fresh insights from an emerging market economy

Olaniyi

Young

et al. 2022

Manage Decis Econ

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This study examines the role of institutional quality and its threshold in the sensitivity of CEO pay to firm performance in an emerging market economy, using a generalized method of moments, Driscoll and Kraay's nonparametric covariance matrix estimator, and robust dynamic panel threshold. Bureaucratic quality and corruption control weaken performance‐based pay for CEOs, while law and order strengthen it. The overall institutions allow boardroom backscratching which biases executive compensation contracts. The study shows that the country operates below the institutional quality threshold values required to spur performance‐based pay for CEOs. The study concludes that institutions matter in CEO pay‐firm performance nexus.

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Excessive managerial entrenchment, corporate governance, and firm performance

Cited by 29 publications

References 66 publications

The determinants of CEO compensation: new insights from United States

The determinants of CEO compensation: new insights from United States

Antecedents and effect of creative accounting practices on organizational outcomes: Evidence from Bangladesh

Do institutional framework and its threshold matter in the sensitivity of CEO pay to firm performance? Fresh insights from an emerging market economy

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