Incentive alignment through performance-focused shareholder proposals on management compensation

Fortin, Steve; Subramaniam, Chandrasekar; Wang, Xu Frank; Zhang, Sanjian

doi:10.1016/j.jcae.2014.06.001

Cited by 9 publications

(7 citation statements)

References 54 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Abundant literature on the executive or management-related issues and their connection with firm performance is available. Activists also encourage the firms to have performance-based compensation for executives, which is expected to positively affect the firm's performance (Croci et al 2012;Fortin et al 2014;Hartzell and Starks 2003). Cronqvist and Fahlenbrach (2008) also found the effect of activist shareholders on the firm's compensation policies and other vital policies; This, in return, affects the firm performance positively (Cai and Walkling 2011;Fortin et al 2014).…”

Section: Connecting Dots Between Shareholder Activism and Firm Perfor...mentioning

confidence: 98%

Shareholder Activism and Its Impact on Profitability, Return, and Valuation of the Firms in India

Shingade

Rastogi

Bhimavarapu

et al. 2022

JRFM

View full text Add to dashboard Cite

The paper’s prime objective is to understand the impact of Shareholder activism on firm performance. This study is conducted in a unique setup where traditional activist investors such as pension funds and hedge funds are not present. However, the activism cases are increasing yearly in an emerging economy like India. We have created a comprehensive shareholder activism index (sha index) using multiple activisms and corporate governance factors. To measure firm performance, we have used valuation (Tobin’s Q and Market capitalization), profitability (operating profit margin and net profit margin), and return ratios (Return on capital and return on equity). Panel data analysis (PDA) is employed for the current study as it overcomes the shortcomings of the time series analysis and cross-sectional studies. The sample comprises 37 listed firms’ data for FY2017 to FY2020. Chosen firms have experienced activism instances at least once during the 2017–2020 period. As per our analysis, shareholder activism has a significant negative impact on valuation measured in market capitalization and profitability estimated by operating profit margin. Activism primarily impacts the other four parameters negatively, but it is insignificant. India is in the nascent stage of activism, partly explaining the insignificance of the effects of shareholder activism on firm performance. Also, activist investors are targeting companies. These attacks are not fructifying desired outcomes as promoters own over 50% stake in the listed companies. The latest data for FY2021 has not been considered for the study as covid-19 impacted the businesses during the financial year. Also, we cannot capture activism instances that are not reported in regulatory filings. Unlike past research in this area, we have used a comprehensive activism index as a proxy of activism and have employed PDA instead of event studies to assess the impact on firm performance. Also, this is the first such empirical study conducted in an emerging economy setup where neither large hedge nor pension funds are present.

show abstract

Section: Connecting Dots Between Shareholder Activism and Firm Perfor...mentioning

confidence: 98%

Shareholder Activism and Its Impact on Profitability, Return, and Valuation of the Firms in India

Shingade

Rastogi

Bhimavarapu

et al. 2022

JRFM

View full text Add to dashboard Cite

show abstract

“…Examples of these mechanisms include the weights of compensation contract components, i.e., salaries, bonus, stock option, restricted stock and long-term incentive plans (Vieito et al , 2008), the choice and use of non-financial measures in compensation contracts (Ittner et al , 1997; Wiersma, 2009; Xi, 2010; Evans et al , 2010; Van Veen-Dirks, 2010; Zakaria, 2012), placing different weights on non-financial measures compared to financial measures (Ittner et al , 1997; Banker et al , 2000), the retention of non-financial measures in compensation contracts (HassabElnaby et al , 2005), and the adoption of a mix of financial and non-financial measures in compensation contracts and earnings management (Ibrahim and Lloyd, 2011), and the shareholder benefit from the pay-performance activism. (Fortin et al , 2014).…”

Section: Theory Prior Research and Hypotheses Developmentmentioning

confidence: 99%

The use of sustainability incentives in executive remuneration contracts

Abdelmotaal

Abdel-Kader

2016

JAAR

View full text Add to dashboard Cite

Purpose The purpose of this paper is to examine which firm characteristics affect the usage of sustainability incentives in executive remuneration contracts, and whether these sustainability incentives have an impact on shareholders’ return. Design/methodology/approach The analysis is based on a sample of 212 firms from the FTSE 350 firms over the period of 2009-2011. Findings The results indicate that there is a significant relationship between the adoption of sustainability incentives in executive remuneration and firm size, compensation committee independence, the corporate social responsibility (CSR) sustainability committee, CSR sustainability index, and resource efficiency policy variables. Further, there is evidence to support a positive impact on the shareholders’ return. Research limitations/implications The results of this study should be interpreted within two limitations. First, the limited numbers of the sample years due to the limited number of firms used sustainability incentives. Second, the use of a dummy variable in the measurement of the adoption of sustainability incentives in the analysis. Practical implications The paper includes implications for the development of sustainability incentives within the performance measurement system and compensation contracts that could be a solution for the agency problem. Originality/value This study provides empirical evidence on an increased use of sustainability incentives in UK firms, and identifies firm’s characteristics that explain such increase in the sustainability incentives, finally its positive impact on the shareholders’ return.

show abstract

“…Similarly, Chava et al (2009) and Cremers et al (2007) argue that shareholder friendly managers (CEOs with large equity-linked compensation packages) can escalate the shareholder-bondholder conflict. Fortin et al (2014) also show that bondholders are adversely affected by incentive alignment through compensationrelated proposals. Therefore, while compensation-related proposals align shareholders and management, they can have an adverse effect on bondholders by increasing the conflict between shareholders and bondholders.…”

Section: Compensation Versus Audit Board Proposalsmentioning

confidence: 94%

The Impact of Stronger Shareholder Control on Bondholders

Amiri-Moghadam¹,

Javadi²,

Rastad³

2020

J. Financ. Quant. Anal.

View full text Add to dashboard Cite

We study the impact of stronger shareholder control on bondholders. We find that the passage of shareholder-sponsored governance proposals causes a decline in credit default swap spreads, indicating a net positive effect on bondholders. Evidence suggests that the direct benefit of stronger shareholder control, through the “management disciplining” channel, is larger than the combined adverse effects of directly escalating shareholder-bondholder conflict and indirectly exacerbating exposure to shareholder opportunism. Results are stronger for firms with existing high levels of shareholder-bondholder conflict and for proposals that mitigate managerial entrenchment without exacerbating risk-shifting. Finally, stronger shareholder control improves credit ratings and operating performance in the long-term.

show abstract

Incentive alignment through performance-focused shareholder proposals on management compensation

Cited by 9 publications

References 54 publications

Shareholder Activism and Its Impact on Profitability, Return, and Valuation of the Firms in India

Shareholder Activism and Its Impact on Profitability, Return, and Valuation of the Firms in India

The use of sustainability incentives in executive remuneration contracts

The Impact of Stronger Shareholder Control on Bondholders

Contact Info

Product

Resources

About