Network connections, CEO compensation and involuntary turnover: The impact of a friend of a friend

Balsam, Steven; Kwack, So Yean; Lee, Jae Young

doi:10.1016/j.jcorpfin.2017.05.001

Cited by 43 publications

(46 citation statements)

References 46 publications

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“…Firm performance is measured by raw ROA and industry‐year adjusted ROA. Table 5 shows that the main effect on ROA is significantly negative across all model specifications, suggesting that poor performance relates to CEO turnover (Balsam et al, 2017; Brickley, 2003; Fee, Hadlock, Huang, & Pierce, 2018; Jenter & Kanaan, 2015; Parrino, 1997). Further, the coefficient on the interaction term ROA × FEMDIR is significantly positive in all columns, which indicates that female board representation is associated with reduced CEO turnover–performance sensitivity.…”

Section: Resultsmentioning

confidence: 99%

“…Then, we test whether a CEO retention decision made by female boards can predict enhanced firm value in the following year. We estimate a linear probability model to examine the impact of female board representation on performance‐induced CEO turnover (Hypothesis ):

{CEOTURNOVER}_{i, t + 1} = β_{0} + β_{1} {PERF}_{i, t} + β_{2} {FEMDIR}_{i, t} + β_{3} {PERF}_{i, t} \times {FEMDIR}_{i, t} + \sum_{k = 4}^{n} β_{k} {CONTROL}_{k, i, t} + ε_{i, t + 1},

where, with subscripts suppressed, CEOTURNOVER is an indicator of CEO turnover in year t + 1 (Balsam, Kwack, & Lee, 2017; Coles et al, 2014; Francis, Hasan, Park, & Wu, 2015). Figure 1 illustrates the timing sequence in events of CEO turnover.…”

Section: Methodsmentioning

confidence: 99%

“…The inclusion of control variables in Model follows the literature. More specifically, we control for firm‐level characteristics such as firm size, growth, and risk and for governance characteristics such as CEO age, CEO tenure, CEO duality, CEO retirement age, the presence of a female CEO on the board, board size, the fraction of independent directors, and director ownership (Adams & Ferreira, 2009; Balsam et al, 2017; Coles et al, 2014; Fich & Shidvasani, 2006; Masulis, Wang, & Xie, 2012; Rose, Mazza, Norman, & Rose, 2013). We also include variables that reflect institutional background in Russia.…”

Section: Methodsmentioning

confidence: 99%

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Female representation on boards andCEOperformance‐induced turnover: Evidence from Russia

Kim

Kuang

Qin

2020

Corporate Governance

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Research Question/Issue: This study examines the influence of female board representation on CEO turnover and firm value. We focus on Russia, a patriarchal country with vast gender differences, where empathy, patience, and supportiveness are considered fundamental qualities of females. Research Findings/Insights: Using a sample of public firms listed on the MoscowExchange from 2006 to 2015, we find that female representation on boards is associated with lower CEO turnover-performance sensitivity. Further, female boards appear to add firm value, as we find that CEO retention decisions are associated with improved future firm value when the decision is made by a female board. Furthermore, we identify that female representation on boards is associated with greater diligence (i.e., hold more board meetings) after retaining their underperforming CEOs.Theoretical/Academic Implications: Our findings suggest that female boards tend to develop a long-term view of CEO performance and that such boards exercise greater diligence and supportiveness, thereby adding shareholder value. Our results also indicate that patience and collaboration of corporate boards afford opportunities to develop strategic thinking, which is particularly valuable for a firm in times of crisis.Our study contributes to the research on what qualities of a board affect its decision making and effectiveness. Our research also adds to the literature on female board representation. We study Russia, where gender differences are prominent, and female representation occurs by happenstance rather than regulatorily / intentionally. Overall, we are able to attribute our findings to female representation on boards.Practitioner/Policy Implications: Our study contributes to the burgeoning research on corporate governance in Russia. Although the Russian economy has demonstrated unprecedented growth among emerging markets, research on corporate governance in Russia remains scarce. Our study is among the first efforts to understand how female boards perform in a patriarchal country. Our investigation, therefore, offers important insights for policymakers and practitioners. K E Y W O R D S board composition, board task effectiveness, corporate governance, Russia

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Section: Resultsmentioning

confidence: 99%

{CEOTURNOVER}_{i, t + 1} = β_{0} + β_{1} {PERF}_{i, t} + β_{2} {FEMDIR}_{i, t} + β_{3} {PERF}_{i, t} \times {FEMDIR}_{i, t} + \sum_{k = 4}^{n} β_{k} {CONTROL}_{k, i, t} + ε_{i, t + 1},

Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

See 1 more Smart Citation

Female representation on boards andCEOperformance‐induced turnover: Evidence from Russia

Kim

Kuang

Qin

2020

Corporate Governance

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“…We also consider indirect connections between executives and the committee members. Balsam, Kwack, and Lee () find indirect social ties through a third party to be less observable and to have a positive association with the level of executive compensation. We use the (i) to (v) social ties to identify whether a committee member has an indirect connection with executives.…”

Section: Methodsmentioning

confidence: 99%

“…The reason for using a dummy variable when defining a friendly compensation committee is that decisions are considered approved when they are approved by more than half of the committee members. Therefore, the use of a dummy variable is employed by the vast majority of the literature (Balsam et al, ; Faleye et al, ; Hwang & Kim, ; Klein, ). We also use the percentage of friendly members on the compensation committee to proxy for the friendly compensation committee and find consistent results.…”

mentioning

confidence: 99%

Friendly compensation committees and pay‐for‐luck asymmetry: Evidence from Taiwan

Pan

Liao

Hsu³

2020

Corporate Governance

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Research Question/Issue The study examines whether the presence of social ties between compensation committee members and executives explains pay‐for‐luck asymmetry in compensation, which means that the compensation contracts reward executives with higher pay for good luck but minimally penalize them with lower pay for bad luck. Research Findings/Insights We find that half of our sample firms have a friendly compensation committee, defined as the majority of the committee members having at least two social ties with executives. For firms with a friendly compensation committee, executives tend to be rewarded for good luck but not be penalized for bad luck, which indicates the presence of pay‐for‐luck asymmetry. For firms without a friendly compensation committee, their executive compensation is not associated with good luck or bad luck. Theoretical/Academic Implications The higher homophily due to social ties between compensation committee members and executives induces the committee to be more mentally close to or loosen the monitoring intensity over executives, and to be less likely to make an unfavorable design of compensation toward executives in the presence of bad luck. We complement existing studies by clearly demonstrating the channel through which executives influence the committee members. We also highlight the decisive role of the compensation committee in examining pay‐for‐luck asymmetry research issues. Practitioner/Policy Implications Our findings inform practitioners that social ties between compensation committee members and executives may impair the monitoring intensity of the committee, and hence, regulators should take measures to mandate or at least encourage firms to provide social ties information. https://www.youtube.com/watch?v=UL9iGjERnRo&feature=youtu.be

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Does lobbying of firms complement executive networks in determining executive compensation?

et al. 2020

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In this paper we predict and find that the lobbying activities of firms can complement executive networks in determining executive compensation. Firms of all sizes, after considering market competition as a governance mechanism, prefer to consider lobbying as a means of networking along with executive level networking to determine executive compensation. The empirical implication of the study provides guidance to scholars who should consider lobbying along with executive networks in determining executive compensation. The composite theoretical underpinning and the importance of information flow through lobbying activities of firms will be an important insight for policy makers involved in determining executive compensation.

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Network connections, CEO compensation and involuntary turnover: The impact of a friend of a friend

Cited by 43 publications

References 46 publications

Female representation on boards andCEOperformance‐induced turnover: Evidence from Russia

Female representation on boards andCEOperformance‐induced turnover: Evidence from Russia

Friendly compensation committees and pay‐for‐luck asymmetry: Evidence from Taiwan

Does lobbying of firms complement executive networks in determining executive compensation?

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