The agency problem revisited: a structural analysis of managerial productivity and CEO compensation in large US commercial banks

Li, Shasha; Sickles, Robin C.

doi:10.1007/s00181-020-01982-5

Cited by 15 publications

(5 citation statements)

References 44 publications

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“…Agency theory is among the fundamental theories used to explain CEO remuneration (Jensen & Meckling, 1976). This theory suggests that the remuneration for the CEO should be set in a manner that causes goal congruence among the interest of the agents (CEO being one of them) and the principles (that is, the shareholders or owners of the company) (Liu & Sickles, 2021). The prominent proxies used to represent Agency theory relate to firm performance measures.…”

Section: Agency Theory and Ceo Remunerationmentioning

confidence: 99%

Setting CEO Remuneration in Pakistan: Comparing Theory and Practice

Siddiqui,

Sohail,

Niazi

2023

jirms

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Purpose - The current study examines the explanatory power of four main theories (Agency, Stakeholder, Management Power, and Institutional) for setting CEO remuneration in Pakistan. As such, the study evaluates CEO remuneration from a country-specific perspective. Design/methodology/approach - Data for 58 non-financial firms is collected for the past ten years (from 2012 to 2021) for the examination. GMM/IV approach is used for estimating the output to control the potential endogeneity problem. The study also applies the Fixed Effects EGLS estimation approach as a robustness check while changing certain proxies. Findings - The results show evidence to support the explanatory power of all four theories selected for the examination when determining CEO remuneration in Pakistan. Based on the results of the study, the order of importance or explanatory power (from highest to lowest) of the theories is: (i) Agency theory (represented by firm performance), (ii) Management Power theory (represented by firm size), (iii) Stakeholder theory (represented by CSR and sustainable practices), and (iv) Institutional theory (represented by governance and CEO-specific factors). Therefore, the study concludes that in Pakistan, CEO remuneration is set following the notions of Agency theory, where the primary aim of the Board is to align the interests of the CEO with the shareholders. Practical Implications-The major practical implication of the current study relates to setting an optimal CEO remuneration policy. The study empirically shows which factors play a role in setting CEO remuneration in Pakistan, providing an avenue of reassessing and refining the policy as and when needed, as the external factors change. However, improving the sample size and examining the relationship of Stakeholder theory with aspects like ESG (environmental, social, and governance) disclosures would further improve the quality and generalizability of the study. Originality/value - Available literature covering CEO remuneration is quite diverse, however, as scholars have examined it using different theoretical approaches, the results are inconclusive. As such, there is a need to establish the explanatory powers of different theorized relationships for CEO remuneration and consider how CEO remuneration is determined in practice. Furthermore, the studies covering different countries and markets show different results, reflecting the importance of considering institutional and market settings when inferring the results. Both these gaps are addressed in the current study.

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Section: Agency Theory and Ceo Remunerationmentioning

confidence: 99%

Setting CEO Remuneration in Pakistan: Comparing Theory and Practice

Siddiqui,

Sohail,

Niazi

2023

jirms

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“…The origin of principal-agent theory is the agency issues caused by the information asymmetry between the principal and the agent. In a principal-agent relationship, there are differences in the utility maximization goals of both sides (Liu and Sickles, 2020) [3], and corporate shareholders naturally have an information disadvantage compared with executives. Based on the maximization of personal benefits, senior executives may engage in behaviors that are not conducive to the enterprise.…”

Section: Agency Issues Arising From Information Asymmetrymentioning

confidence: 99%

Incentive Executive Compensation Management System: A Literature Review

2022

2022 2nd International Conference on Management Science and Industrial Economy Development (MSIED 2022)

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Senior executives control the operation of the enterprise. Whether the executive compensation management is reasonable and whether it can meet the needs of executives will directly affect the operation efficiency and management efficiency of the whole enterprise. In modern enterprises, the separation of ownership and management is a major feature, and the emergence of agency issues is inevitable, mainly due to adverse selection and moral hazard under the background of information asymmetry. Determining executive compensation by evaluating corporate performance, on the one hand, can mobilize the enthusiasm of executives; on the other hand, it can effectively reduce the agency cost caused by information asymmetry. Based on the principal-agent theory, this paper firstly discusses the agency problem caused by the information asymmetry between shareholders and executives, and then points out that executive compensation, as an incentive means, can effectively alleviate the agency conflict. Previous studies have shown that there is a positive correlation between executive compensation and corporate performance. Then, this paper summarizes the research on the compensation dispersion and compensation stickiness in executive compensation management, so as to put forward some considerations and suggestions for the design of executive compensation management system. Finally, it makes a summary and puts forward the prospect of future research on the shortcomings of existing studies.

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“…The lack of clarity on financial disclosures gets further exacerbated due to the diverse expectations by varied stakeholders of the banks. The stock market, regulators, shareholders and other stakeholders may not analyse the performance of the bank on similar parameters (Arun and Turner, 2004; Liu and Sickles, 2021). The management of the banks are bogged down under enormous pressures and reveals similar information to all the concerned stakeholders.…”

Section: Introductionmentioning

confidence: 99%

Ownership concentration and its influence on transparency and disclosures of banks in India

Bhimavarapu

Rastogi

Kanoujiya

2022

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Purpose The disclosures in banks have become a matter of grave concern, especially post 2008 world financial crisis. The issue further gets exacerbated because disclosers in banks are part of the III pillar of BASEL-II floated in 1999, and despite that, banks face challenges in this regard. Ownership concentration (OC) is a point of discussion because it may affect banks’ corporate governance and transparency and disclosures (T&D) issues. This study aims to determine how OC affects the transparency in the banks. Design/methodology/approach A T&D index is built into the study covering all the relevant contemporary issues regarding disclosures in banks. The panel data specification is used to find out the association of components of the OC on the T&D practices in the banks. Bank data of 34 banks are gathered for four years for the study. Findings It is found that except for retail investors, other classes of OC are not concerned with the disclosures in the banks even though substantial financial and non-financial interests are at stake concerning them. The study’s findings suggest framing policies and regulations considering the accountability of promoters and institutional investors for ensuring disclosures in banks. Research limitations/implications A few proxies to measure T&D found in the literature have not been used in the study. Similarly, the definition of promoter’s class of investors can be improved. Originality/value To the best of the authors’ knowledge, no other study builds T&D for banks and examines their impact because of the ownership classes (as used by the current study). This study is unique in this aspect.

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The agency problem revisited: a structural analysis of managerial productivity and CEO compensation in large US commercial banks

Cited by 15 publications

References 44 publications

Setting CEO Remuneration in Pakistan: Comparing Theory and Practice

Setting CEO Remuneration in Pakistan: Comparing Theory and Practice

Incentive Executive Compensation Management System: A Literature Review

Ownership concentration and its influence on transparency and disclosures of banks in India

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