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This paper first documents the impacts of property age on the operational efficiency, portfolio risk and market valuation of REITs. Based on the findings, we examine three possible explanations why REITs own older properties. Using a comprehensive property-level data set of U.S. equity REITs from 1995 to 2020, we construct a firm-level property age measure based on the age of individual properties held by REITs. Controlling for important firm characteristics, we find that REITs holding more older properties exhibit lower operational efficiency, lower firm value and higher firm risk than their counterparts. Moreover, while the stockholders do not enjoy higher stock returns, we find evidence that managers of REITs that carry more aged properties in their portfolios earn significantly higher compensation. This is consistent with agency cost associated with managerial opportunism. Furthermore, REITs that own more properties in the same locations as their headquareters and those with higher geographic concentration of properties tend to hold older properties. This finding is consistent with the hypothesis based on geographic locations of older properties. We, however, do not find evidence supporting the growth hypothesis associated with core-plus or value-add investment strategies. [ABSTRACT FROM AUTHOR]

This research examines how option trading activity reduces information asymmetry through the CEO's and ordinary employee's awareness of firm value and their pay related to firm performance. Our findings demonstrate that companies with more options trading activity have a higher CEO-employee pay ratio, which is consistent with the tournament theory. Option trading illustrates that both CEOs and employees understand their relevant payment based on the precise firm value. This advantage of option trading becomes weak for firms with higher profitability, for employees with more bargaining power, and for CEOs with a higher risk incentive. [ABSTRACT FROM AUTHOR]

In this study, we investigate whether CEO inside debt, a compensation mechanism designed to align managers' and debtholders' interests, plays a role in facilitating firms' ability to secure higher trade credit from their suppliers. We argue that CEO inside debt offers heightened assurance to trade creditors, resulting in their greater willingness to extend higher levels of trade credit. Firms perceive this as a favourable source of short-term financing compared to traditional bank financing due to its cost-effectiveness and considerably lower barriers to access. Contrary to the previous studies, our empirical analysis encompassing a sample of non-financial firms in the United States reveals a significant positive relationship between CEO inside debt and firms' ability to secure trade credit. This confirms our assertion that trade credit suppliers' increased willingness to accept a higher level of risk is driven by the confidence instilled by the CEO inside debt holdings. Furthermore, we show that this relationship is significantly stronger in financially constrained firms, where it serves as a critical assurance mechanism for suppliers of trade credit. Suggesting that CEO inside debt play a key role in sustaining financially constrained firms that are typically neglected by formal lending institutions. [ABSTRACT FROM AUTHOR]

This study uses agency theory to examine how board size, compensation committee, and CEO duality align the pay-performance relationship with long-term sustainability performance. We examined companies from nine Asian emerging economies with a sustainability score greater than 0.50 between 2010 and 2019. The findings support the pay-performance relationship proposed by agency theory in the presence of a robust governance structure. The relationship is more significant in firms with high ESG scores. Our study claimed that the compensation committee has a significant role in aligning sustainability objectives with CEO compensation, which improves the firm's market and financial performance. However, board size has no discernible impact on the CEO pay-performance relationship. CEO duality negatively affects this alignment since the CEO misuses their power to influence the compensation committee's role in tying sustainability agendas with the CEO's pay performance framework. Furthermore, CEO compensation is significantly impacted by firm size, which is justified by the complexity and increased responsibilities associated with managing larger firms. Conclusively, this investigation suggests that the inconclusive evidence on CEO compensation around the world should be studied with governance mechanisms. This study advances knowledge of agency theory and the connection between sustainability performance and compensation. The findings of the study highlight the role of governance structure in aligning executive compensation with sustainability to improve long-term performance. These findings suggest policymakers promote strong governance mechanisms that reduce the CEO's power to influence the board and enhance the independence of the compensation committee to independently design the executive compensation package essential for aligning executive pay with sustainability performance. [ABSTRACT FROM AUTHOR]

Competition law infringements have been theorised to be a consequence of flawed monitoring by the board of directors. The focus of European Union competition law on sanctioning undertakings, rather than individuals, offers a particularly interesting context to empirically test this theory. The study uses agency theory for this purpose to analyse the relationship between a number of characteristics of the board of directors and European Union competition law infringements. It encompasses all listed undertakings that have committed a European Union competition law infringement since 2003, irrespective of their nationality. After controlling for temporal, geographic and industry-related effects, it finds that both CEO/Chair duality and gender diversity are associated with an increased likelihood of committing an EU competition law infringement. No relationship was found between European Union competition law infringements and the ratio of non-executive directors, the ratio of directors appointed after the CEO, board tenure, CEO tenure, CEO compensation or the size of the board. The results indicate that future governance initiatives aimed at increasing gender diversity and separating the functions of CEO and chairperson might also be relevant for competition law policy. [ABSTRACT FROM AUTHOR]

This paper examines the properties of accounting numbers used in compensation contracts for S&P 500 firms from 2006 to 2017. Our data reveal wide variation in the accounting performance metrics used in compensation contracts, with some recent movement from bottom-line earnings-based measures to top-line measures. Investigating specific exclusions made to GAAP-based financial measures to arrive at realized compensation performances, we identify 27 different types of exclusions and document significant heterogeneity in tailoring across firms. We test whether exclusions are made to remove noise in performance measures and better isolate managerial effort (efficient contracting theory) or to camouflage managerial rent extraction (managerial power theory). We find evidence consistent with both explanations. [ABSTRACT FROM AUTHOR]

Based on the recent SEC-mandated disclosures of CEO-worker pay ratios, we find that firms significantly decrease (increase) their CEO-worker pay ratios when their prior pay ratios are high (low) relative to peers. More importantly, the decrease in pay ratio among high pay ratio firms is significantly more pronounced with stronger stakeholder influences, proxied by employees with greater bargaining power, communities with higher social capital, and states with more stringent minimum wage legislation. These results are robust to controlling for CEO and median worker pay benchmarking as well as the influences of shareholders. Using state-level pay ratio tax proposals as another proxy for stakeholder influence, we find high pay ratio firms in states with these proposals reduce pay ratios significantly more than firms with similar high pay ratios in other states. Overall, our results highlight the influence of corporate stakeholders in mitigating high CEO-worker pay gap. [ABSTRACT FROM AUTHOR]

Fundamental principles of agency theory and incentive mechanisms suggest that executive compensation should align with a company's developmental goals. This paper aims to explore whether the executive compensation of listed companies in the Chinese capital market aligns with their ESG (Environmental, Social, and Governance) practices, and the underlying mechanisms of this influence. For the first time, this study integrates ESG practices with executive compensation, creating a novel analytical framework and filling a gap in the existing literature. Employing empirical research methods such as the PSM-DID (Propensity Score Matching – Difference-in-differences) model, fixed effects model, heterogeneity analysis, and tests for mediating effects, the study concludes that ESG practices of Chinese listed companies significantly increase executive compensation, demonstrating consistency between the two. Additionally, the beneficial impact of ESG practices on executive compensation incentives is more pronounced in state-owned enterprises compared to non-state-owned ones. Financial performance, company reputation, and investor relations partially mediate the relationship between a company's ESG practices and executive compensation. Specifically, financial performance acts as a negative mediator, while company reputation and investor relations serve as positive mediators. Initially, participation in ESG practices tends to exacerbate 'income inequality' between executives and other employees. However, as companies continue to enhance their ESG practice levels, this 'income inequality' gradually diminishes. Finally, the paper offers several suggestions: Firstly, Chinese listed companies can attract and retain top executive talents by strengthening ESG practices. Although initial ESG practices may lead to pay imbalances, long-term involvement will help reduce this disparity. Secondly, investors can conduct a more comprehensive assessment of a company's future performance, governance structure, and corporate social responsibility by analyzing how ESG practices are reflected in executive compensation. Lastly, the paper provides valuable insights for policymakers, suggesting that regulators should develop more targeted policies and guidelines based on the relationship between a company's ESG practices and executive compensation. [ABSTRACT FROM AUTHOR]

Relations between REIT CEO compensation, firm stock performance and risk, after FASB accounting changes and additional SEC compensation disclosure requirements in 2006, are examined. Total compensation becomes more weighted to bonus payments and stock grants and away from options and salary. The majority of REIT CEO compensation comes from bonus payments and stock grants. REIT CEO compensation is found to be positively correlated with lagged firm stock performance, but not lagged firm risk measures. A new metric related to the REIT dividend requirement, dividends paid to CEOs from share ownership, is positively related to CEO total compensation, and the positive relation is driven by a strong association between cash dividends to CEOs and their equity-based compensation. These findings suggest that REIT CEOs trade-off certainty in cash compensation for equity-based wealth and related cash flows. Most important, our results suggest that REIT CEOs are paid for performance and are less likely to earn windfalls that have been associated with the use of options and mis-priced firm risk in non-REIT firms. [ABSTRACT FROM AUTHOR]

We test whether industry tournament incentives (ITI) for CEOs influence debt contracting. Measuring ITI as the pay gap between a CEO and the highest-paid industry peer, we find that firm credit ratings decrease and loan spreads and the tightness of non-price loan features increase with the industry pay gap. We find that a history of income increasing discretionary accruals and accounting restatements accentuate the influence of ITI on the cost of loans, while more restrictive loan contracts, greater alignment of managerial and creditor incentives, and higher default risk attenuate the influence of ITI on the cost of loans. [ABSTRACT FROM AUTHOR]

In recent years, companies’ disclosure of information regarding their carbon emissions has evolved rapidly. However, an important question remains whether carbon emissions disclosure has any influence on climate change risk reporting. Previous literature has not focused on the more pressing question of how changes in carbon performance may lead to subsequent changes in climate change disclosure. This study examines how sustainable board and the use of sustainability targets in executive compensation can moderate the relationship between climate change disclosure and carbon performance. Following a mixed theoretical framework focusing on upper echelon theory, we revisit the relationship between climate change reporting and carbon performance. The Leadership Index is used to measure the level of climate change disclosure, and carbon performance is based on both the carbon intensity of emissions and the mitigation of carbon emissions. From an international sample of listed companies, we use an ordered logit regression methodology. Our study contributes to the growing literature on sustainable governance and the effect of Chief Sustainability Officer serving on the board of directors on climate change reporting. The most important idea is to know which sustainable board mechanisms should be responsible for improving climate reporting. [ABSTRACT FROM AUTHOR]

This paper examines the risk incentives of traditional and non-traditional call options in the context of a levered firm where managers under-invest due to risk aversion. Our results contrast with those presented in the literature inasmuch as lookback calls do not always induce higher risk taking than regular calls, and managers always prefer a combination of regular calls and shares of stock in their compensation package as opposed to only company shares. We also show that Asian options outperform both plain-vanilla and other nonstandard options in inducing higher risk taking and, thereby, are a superior remedy for alleviating the agency costs of deviating from the optimal volatility level. Finally, we shed new insights that better clarify the incorrect arguments found in the literature regarding the delta of regular and lookback calls. [ABSTRACT FROM AUTHOR]

The objective of this research is to examine whether and how enterprises adjust their corporate social responsibility (CSR) activities in response to top executives' local tournament incentives. The findings provide evidence to support the claim that local compensation gaps encourage top executives to reduce their CSR performance; furthermore, they indicate that this reduction is accomplished mainly through the CSR categories of diversity, community, the environment and product. The enforceability of noncompete agreements (NCAs) is examined, and the negative relationship between local compensation gaps and CSR is documented to be weaker in states that feature stronger enforcement of NCAs, which constrains labour mobility and imposes turnover costs. The findings of this research are robust to concerns regarding endogeneity and reverse causality. [ABSTRACT FROM AUTHOR]

Executive remuneration has traditionally attracted the attention of scholars, regulators, and public opinion. In recent years, especially after epochal corporate scandals and financial crises, executive remuneration has polarized the political debate, leading to consequences for the way it was theorized, structured, and ultimately quantified within corporations. This article specifically examines the relationship between executive compensation and sustainability, with a focus on the influence of Environmental, Social, Governance (ESG) metrics in the context of European companies. The article provides a qualitative analysis of the historical debate on executive remuneration and considers the different theories informing corporate law. Furthermore, it offers a qualitative and empirical analysis of how executive compensation policies of the 300 largest companies by target capitalization in Europe – listed in the FTSE EuroFirst300 – take ESG parameters into account. Lastly, this article presents some policy considerations, particularly questioning whether executive remuneration is the right incentive for ESG compliance, and emphasizing the importance of a shift in corporate culture to effectively make corporate practices more sustainable. [ABSTRACT FROM AUTHOR]

In this study, we fill the void in the literature by examining relative CEO to employee pay for luck and pay asymmetry phenomena over 72 years from 1949 to 2020. We find that CEO pay for luck and the asymmetric benchmarking of the pay exist for CEOs as well as median employees. However, CEOs have a more robust pay for luck and a more pronounced pay asymmetry than median employees. Furthermore, we find that the corporate pay-related regulations implemented in the 2000s have achieved their intended goal of mitigating pay inequity between CEOs and median employees. It lowers the degree of CEO pay for luck and asymmetry compared to median employees. Our findings shed new insights on CEO and employee pay for non-performance to academia, regulators, and shareholders. [ABSTRACT FROM AUTHOR]

This study examines the impact of long-term trend of CEO pay structure on CEO pay for luck and the asymmetric benchmarking of CEO pay over a 72-year period from 1949 to 2020. We find that both CEO pay structure and pay for non-performance incur dramatic changes since the 1970s. The widely adopted options awarded to CEOs since the 1980s not only lead to a sharp increase of the level of CEO compensation, but also significantly amplify the phenomenon of CEO pay for non-performance and pay asymmetry. However, a wave of executive pay-related regulations in the 2000s and the rapidly rising stock awards have changed the situation characterized by the diminishing CEO pay for luck and pay asymmetry in the past decades. Our findings support a time-varying CEO pay for luck and pay asymmetry in the long run due to the changing CEO compensation structure under various circumstances. [ABSTRACT FROM AUTHOR]

The present study investigates whether CEO initial tenure is essential in establishing CSR practices. In further analysis, we contemplate the consequences of CEO's initial service tenure CSR engagement. Our analysis is based on the sample of Chinese-listed firms from 2009 to 2019 periods—the research study used a fixed-effect panel approach for analyzing the dataset. A two-stage-least square test is then used to address the endogeneity problem. The study's findings manifest that CEO tenure is negatively and significantly associated with CSR practices. In an additional analysis, the study reveals that CEOs have more significant career concerns in the initial service period than afterward in their later service period. Therefore, CSR practices increase in CEO's initial service tenure. Moreover, the study documented that the CEO's CSR engagement in their initial tenure has a positive-and-significant association with their compensation package and lessens the risk of dismissals. Finally, we demonstrate that CEOs concentrate more on CSR practices in coastal regions of China. This research is helpful for policymakers in devising CSR policies and making corporate governance decisions. [ABSTRACT FROM AUTHOR]

The environmental protection tax (EPT) reform is a major strategic measure to further implement green development and is the most important environmental economic policy in China. Using data from 3339 companies listed on the A-shares in China's Shanghai and Shenzhen from 2006 to 2021, this paper evaluates the policy impact of the EPT on corporate carbon emissions and its internal mechanism from the perspective of green innovation by the DID method. The results show that EPT reform effectively promotes corporate carbon emission reduction, and the conclusion remains valid after robustness tests such as the DDD and DML method. The EPT reform mainly promotes carbon emission reduction in companies with high executive compensation levels and high environmental information disclosure, and mature companies. Furthermore, the EPT reform promotes enterprises to reduce carbon emissions by forcing them to adopt strategic and endpoint green innovation, and this "forcing" effect is mainly reflected in internal incentives and external pressure. [ABSTRACT FROM AUTHOR]

This study examines whether independent legal directors have more conservative attitudes toward bank CEO stock option awards compared to other independent directors. We find that the proportion of legal directors among independent directors is negatively associated with CEO stock option awards as a proportion of both total CEO compensation and total CEO stock-based compensation. Moreover, the negative effect of independent legal directorship on stock option awards is moderated by CEO ownership. Our findings indicate that independent legal directors are less willing to compensate bank CEOs with stock option awards than independent non-legal directors. However, their reluctance toward stock option awards is alleviated when bank CEOs are vulnerable to experiencing a greater wealth loss from risk-taking. Overall, we document that independent legal directors intend to constrain excessive bank risk-taking through restricting CEO stock option awards. It is worth exploring effective oversight mechanisms for bank boards to constrain risk-taking, and this study extends this research stream by revealing a specific channel that can facilitate independent directors to play an important role in overseeing bank risk-taking. [ABSTRACT FROM AUTHOR]

Executive compensation is an important part of the internal governance of commercial banks, and the rationality of the compensation mechanism directly affects the bank’s risk-taking. Based on the panel data of 34 listed small- and medium-sized banks in China from 2012 to 2020, this paper empirically examines the impact and mechanism between executive compensation and the risk-taking level of small- and medium-sized banks. We find that executives’ short-term executive compensation significantly and positively affects the risk-taking level of small- and medium-sized banks, while executives’ long-term executive compensation significantly and negatively affects the risk-taking. Furthermore, considering the specificity of the capital structure of small- and medium-sized banks, we analyse the moderating effect of the capital structure on the above roles and find that there is a partial moderating effect of the capital structure on the relationship between executive short-term compensation and risk-taking in small- and medium-sized banks. This study provides theoretical foundations and countermeasures for improving the executive compensation mechanism and optimising the equity structure to reduce the risk-taking of small- and medium-sized banks and maintain the stability of the financial system. [ABSTRACT FROM AUTHOR]

This paper examines how chief executive officers' (CEOs') prosocial tendency influences corporate policies and firm value. We use individuals' involvement with charitable organizations as a proxy for prosocial tendency. We find that, compared to firms with non-prosocial CEOs, firms with prosocial CEOs have lower executive subordinate turnover, implement more employee-friendly policies, experience higher customer satisfaction, and engage in more socially responsible activities. We also find that firms with prosocial CEOs have higher value and lower risk, partly due to the corporate policies adopted by prosocial CEOs. These results are corroborated when we compare changes in corporate policies and firm value around different types of CEO turnovers: a prosocial CEO replacing a non-prosocial CEO versus other types. Our results thus suggest that prosocial CEOs are more likely to make corporate decisions that benefit others and increase firm value. [ABSTRACT FROM AUTHOR]

This paper analyses the determinants of disclosure in compensation reports. Using a hand-collected dataset of 429 observations we assess which compensation, governance and ownership variables influence the quality of disclosure in compensation reports from 2006 to 2014 in a German setting. Managers have incentives to conceal compensation disclosure leading to a conflict of interest with shareholders. The overall findings suggest that opportunistic reporting incentives, as proposed by the managerial power theory, cannot explain a lack of more detailed disclosure. Managers rather avoid these disclosures because they would require additional effort. The empirical analyses reveal four major disclosure determinants: company size, age, family members in the boards and verticality. Other variables such as proprietary costs, governance variables and performance show no or no stable influence. The absence of disclosure is therefore a confluence of company resources (company size and forecasts increase disclosure), owner interests (family members in the board decreases disclosure), and concerns about social equity infringement (higher pay inequity leads to lower disclosure). [ABSTRACT FROM AUTHOR]

For over four decades, the topic of Chief Executive Officer (CEO) compensation has attracted considerable attention from the fields of economics, finance, management, public policy, law, and business ethics. As scholarly interest in CEO pay has increased, so has public concern about the ethics of high CEO pay. Despite growing interest and pressure among the public and government to reduce CEO pay, it has continued to increase. Using a multi-method design incorporating a pilot study, two online experiments, and an event study, we investigate the impact of CEO pay on consumer purchase intent and find that this negative relationship is magnified under conditions of brand crisis. We also find that the negative interaction of high CEO pay and brand crisis on purchase intent is more negative when the brand has strong equity. Finally, when the CEO is awarded high pay while the firm they manage is undergoing a brand crisis, consumers lose trust in the firm's brand which reduces consumer purchase intent. This research provides insight on how governance decisions can impact consumer perceptions of corporate brands and consumer behavior, with implications for public policy leaders, boards of directors, CEOs, and Chief Marketing Officers regarding how to manage and message CEO pay. [ABSTRACT FROM AUTHOR]

In recent years, the impact of chief executive officers (CEOs) power on corporate strategies has attracted significant public debate in the academic milieu. In this study, we comprehensively review the academic literature on CEO power in relation to different corporate policies. We conduct a comprehensive review by dividing the literature into four streams: CEO power and firm performance, CEO power and executive compensation, CEO power and firm risk-taking, and finally, CEO power on other corporate strategies. Our review shows that the findings are mixed in relation to the effects of CEO power on firm strategies. Overall, the negative impact of CEO power on firm performance is attributed to agency theory, where CEOs pursue their own vested interests, thereby leading to weak corporate governance. The review reveals that the positive impact of CEO power on corporate outcomes is due to effective board monitoring, a powerful board, and high market competition. Our study also shows that most of the studies have adopted Finkelstein's (1992) four sources of CEO power but have taken different proxies to measure these powers. We have also identified several gaps in the current studies and recommend avenues for further research. [ABSTRACT FROM AUTHOR]

The main objective of the research is to investigate the impact of export divergence, and CEO-pay performance sensitivity on CEO compensation. We construct a new degree of export-related diversification for Chinese listed firms and find that higher levels of export-related diversification results in higher levels of CEO compensation. Moreover, export diversification enhances the CEO pay-performance sensitivity. Our findings are consistent with a variety of model assumptions, such as a Difference-In-Difference regression estimate that accounts for missing variables. Finally, we find evidence that export diversification increases CEO compensation by reducing information symmetry. The study on business diversity is expanded in this work, and it offers compelling indication of the link among such diversification and CEO recompense. [ABSTRACT FROM AUTHOR]

We explore the informational properties of earnings that compensation contracting requires for performance measurement. While conditional conservatism could be desirable because it can help to alleviate agency conflicts, its downside relates to the trade-off between conservatism and other important properties, such as persistence. We infer boards' performance measurement preferences from a novel dataset of earnings realizations used to calculate executive bonus payouts (which we label compensation earnings), which can be either GAAP or non-GAAP. On average, compensation earnings do not exhibit any conditional conservatism in the full sample. The lack of conservatism holds even in subsamples with strong corporate governance and subsamples with high ex ante agency costs, suggesting optimal contract design rather than opportunism. Finally, our analyses indicate that compensation earnings are more persistent and informative than GAAP earnings. Overall our results suggest that boards trade off conservatism for other properties in measuring performance for executive compensation. [ABSTRACT FROM AUTHOR]

Since 2018 the Security and Exchange Commission has required firms to disclose the ratio of their chief executive officer's and median employee's pay. This rule was enacted to address increasing concerns from investors about the human capital management practices of firms. Due to the uncertainty surrounding the ratio's interpretation, some managers provide voluntary disclosures to complement and clarify their mandatory disclosures. We document this behavior by manually inspecting the proxy statements of all firms in the S&P 1500. We predict and find that a firm's propensity to provide voluntary disclosures increases in the magnitude of its pay ratio. This relation is only present, however, when voluntary disclosures contain firm-specific information, as opposed to boilerplate information that is similar across firms. In line with these findings, we show that investors react differently to firm-specific disclosures than to boilerplate disclosures, especially when firms have relatively large CEO pay ratios. We also show that voluntary disclosure provision impacts compensation-related media coverage. [ABSTRACT FROM AUTHOR]

This article conducts a congruence analysis on the historical development of CEO pay at large firms in Finland to contribute to the debate between prominent competing theoretical perspectives on the causes of CEO pay and consequent income inequality. It examines the alignment of the empirical evidence on CEO pay in Finland with a market-based theory, which emphasizes market forces, and a politics-based theory, which emphasizes the distribution of power between labor and employers, drawing from Power Resources Theory, to see whether a particular perspective holds more explanatory power. The congruence analysis finds that the expectations of the politics-based perspective are aligned with CEO pay developments in the 1970s and 1980s, when labor was strong and CEO pay was modest, as well as the difference between CEO pay developments before the mid-1990s and afterward, when employers were strong and CEO pay grew rapidly to new heights. It also finds that the market-based perspective is helpful for explaining developments starting in the mid-1990s. The impact of the market on CEO pay is shown to be contingent on the distribution of power in society. [ABSTRACT FROM AUTHOR]

We investigate the effectiveness of tournament theory based on the age gap between the CEO and the top management team (TMT) in Korean firms. While tournament incentives encourage managers to work harder to improve their performance, their effects may differ on executives' sociological and psychological characteristics. Under Confucian culture, where seniority is highly valued and there is great respect for a senior person, we expect that the effectiveness of tournament theory would differ based on the age gap between the CEO and TMT. Using firms listed on the Korean stock market from 2013 to 2020, we document a significant and positive relationship between the CEO and TMT pay gap and firm performance only when the CEO is older than the average executive in the TMT. Furthermore, we find a significant positive relationship between the pay gap and firm performance only when the CEOs is older than the oldest executives. In addition, we find that the incentive effect of the pay gap between the CEO and TMT exists in horizontal culture firms, even when the CEO is younger than the average age of executives in the TMT. Our findings suggest that, in the presence of an age hierarchy, older executives who feel uncomfortable inhibit collaboration among the TMT, thereby impacting the tournament incentive effect. These observations underscore the importance of social factors in designing executive compensation. [ABSTRACT FROM AUTHOR]

This study utilizes agency theory to examine how Chief Executive Officers' (CEOs) compensation contracts impact marketing strategy decisions within firms. Specifically, we examine whether variations in CEOs' inside-debt to equity ratio (i.e., ratio of pension and deferred compensation to equity holdings) impact the firm's strategic emphasis. Our findings indicate that CEOs with large proportion of inside-debt (i) tend to refrain from value appropriation through reduced advertising investments, and (ii) strategically emphasize firm resources towards the value appropriation process (advertising) as opposed to value creation (R&D). [ABSTRACT FROM AUTHOR]

This paper uses variation in real estate prices to study Chief Executive Officer (CEO) pay for luck. We distinguish between pay for luck and pay for responding to luck (action) by exploiting US GAAP accounting rules, which mandate that real estate used in the firm's operations is not marked-to-market. This setting allows us to empirically disentangle pay for luck from pay for action, as a change in the value of real estate is only accounted for when the CEO responds to changes in property value. We show that CEO compensation is associated with the following two managerial responses to changes in real estate values: (i) real estate sales and (ii) debt issuance. Overall, we show that CEOs are rewarded for taking value-enhancing actions in response to luck. [ABSTRACT FROM AUTHOR]

The correction notice addresses errors in the author name, affiliation, and author contributions for the article "Aligning CEO compensation with sustainability performance: the role of CEO duality, board size, and compensation committees." The correct author name is Elaine Yen Nee Oon, affiliated with Universiti Malaya in Kuala Lumpur, Malaysia. The authors' contributions to the manuscript are outlined, and the correction has been made to the original article. [Extracted from the article]

This paper explores the influence of military directors in protecting shareholders' wealth through CEO compensation and corporate dividend payout policies. Based on manually collected data on corporate boards of non-financial companies operating in Pakistan, the results indicate a significant negative association between the presence of military directors on corporate boards and CEO compensation, thus supporting the notion that such directors are effective in monitoring and curtailing excessive rent seeking behaviour by the agents. In other words, presence of military directors on Pakistani corporate boards reduces agency costs and in turn enhances shareholders' wealth. Results also indicate significant positive relationship between presence of military directors on boards and dividend payout, hence signifying that such directors are effective in enhancing shareholders' wealth by reducing free cash flow opportunities that would otherwise be deployed by agents for their private benefits. We further found military directors with business education and wider networks to have significant positive association with dividend payout but not the case with CEO compensation. We control for board attributes, agent heterogeneity and firm-specific attributes in all our models. Overall, the benefits of military directors' inclusion on corporate boards in Pakistan have far broader strategic, economic and policy implications on the nation besides resolving the principal-agent problems in the boardroom. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to examine how banks changed their executive pay disclosure practices in the aftermath of the global financial crisis. In particular, we examine banks' response to regulations meant to curb banks' short-term risk-taking incentives. We document that differences in the compliance strategies among banks are function of bank's ownership structure and board governance. Using a unique hand-collected dataset, we find that foreign-controlled banks disclose significantly more on executive compensation than do nonforeign-controlled banks. Also, banks with high pension fund ownership adopt a higher level of disclosures. Foreign-controlled banks undertake more voluntary disclosure on executive compensation than do nonforeign-controlled banks. We go further and we test the moderating effect of board compensation committee meetings on the relationship between bank ownership and disclosure. We document that more frequent meetings of the compensation committee increase the executive pay disclosure. We find that the incremental effect of more frequent compensation committee meetings on disclosure is lower for foreign-controlled and for banks with a higher ownership of pension funds. These results may suggest that the board compensation committee matters less for foreign-controlled banks as they are already committed to disclose. [ABSTRACT FROM AUTHOR]

We find evidence of geographic segmentation in the market for top executives and identify industry co-agglomeration as the primary driver. When top executives move from one firm to another, nearly 40% of the moves are between local firms, which is more than five times greater than predicted by available employment opportunities. Furthermore, these local moves are dominated by moves among firms in co-agglomerated industries. While the strong local move bias is also accompanied by local co-movement in the compensation of top executives, the co-movement is driven by local peers in co-agglomerated industries only but not by other local peers. [ABSTRACT FROM AUTHOR]

The corporate governance reform promulgated in 2015 in Japan has contributed to a substantial increase of board independence and a reduction of average board tenure. Our empirical analysis covering 3405 public companies demonstrates that reinvigorated corporate oversight and an increasing post-reform shift towards prioritization of shareholder value have led to a persistent increase of corporate profitability, asset productivity, dividend payouts, acquisitions' value, and valuation multiples. We also document a significant increase of sensitivity of executives' and directors' compensations to the dynamics of firms' bottom lines. The positive changes are the most pronounced within companies where independent directors constitute a majority on the board. The most notable drawbacks of the reform are a significant reduction in net employment creation and in employee turnover within the largest companies. These might be a possible reason for the documented improvement in corporate performance. The number of part-time employees has also seen a significant increase. While being prima facie focused on reinvigorating the private sector, the corporate governance reform may implicitly undermine the established social contract based on job security. Therefore, our study is important from the perspective of sustainable development of the corporate sector as it demonstrates that while concentrating on improving corporate governance, it is also necessary to consider the business' social responsibility. [ABSTRACT FROM AUTHOR]

Social categorization theory argues that ethnic minority executives are more likely to be ostracized by the majority. This in turn leads to these minorities quitting the organizations where they are currently working. However, the perspective of social categorization ignores the ethnic minority institutional backgrounds of different countries and regions. This study examined the inhibiting effect of ethnic minority status on executive turnover from the perspective of institutional theory and explored the potential mediating and moderating variables in the relationship. Based on 42,350 executive-year observations of A-share listed companies in China's Shanghai and Shenzhen stock market exchanges from 2009 to 2018 and their one-year lagged turnover data, ethnic minority status was found to promote executives' political capital and then decrease the subsequent turnover behavior of ethnic minority executives. Moderated mediation analysis revealed that the indirect negative effect of ethnic minority status on executive turnover through political capital was moderated by ethnic autonomous regions. The indirect negative relationship between ethnic minority status and executive turnover was found to be stronger when the executive is from a non-ethnic than an ethnic autonomous region. Our results have theoretical and practical implications for the management of ethnic minority executives and the design of ethnic minority institutions. [ABSTRACT FROM AUTHOR]

This paper reiterates the importance of corporate governance in banks. Failure prediction studies have mainly relied on using financial ratios as predictors. The most suitable financial predictors for banks are financial ratios following the CAMEL rating system. Also, corporate governance has been proven to be an important aspect of banks, especially after the financial crisis. Given its importance, the novelty of this paper is to test the ability of corporate governance to increase the accuracy and extend the time-horizon of bank failure prediction in the US market. Using discriminant analysis, we predict the failure of banks insured by the Federal Deposit Insurance Corporation from 2010 to 2018. Using financial and non-financial predictors, we find that combining CAMEL ratios with corporate governance variables not only increases the accuracy of prediction but also extends the time horizon to three years before failure. We also show that bank earnings is a more significant predictor than capital structure and asset quality. The results further reveal that CEO compensation, voting rights and institutional ownership are significant predictors. These results are robust when using logit regression and out-of-sample examination. This study shows that corporate governance plays a key role in the success or failure of banks. The regulatory implication of this paper is that more attention needs to be directed to corporate governance and earnings aspects of banks rather than focusing on capital structure. [ABSTRACT FROM AUTHOR]

An asymmetric payoff function exists in CEO compensation: the sensitivity between CEO cash compensation and negative stock returns is higher than that to positive stock returns. The underlying rationale for such an asymmetrical relationship is that the difficulty of the ex post settling up of cash compensation prompts boards to reduce compensation when there is bad news. In this paper, we examine firms that adopt clawback provisions and find no evidence of such an asymmetry in these firms. The finding is consistent with the clawback provision's ex post settling up characteristics. Our paper contributes to the literature by showing that clawback provisions favorably impact the structure of CEO compensation by reducing agency costs related to the ex post settling up problem. [ABSTRACT FROM AUTHOR]

State governance in corporations controls the economy and employment to develop prosperity in China. Does privatization achieve both objectives? Privatization theory views that giving up state control benefits firms economically but is quite silent on the value of employment benefits. However, market mix theory (Sappington and Stiglitz, J Policy Anal Manag 6(4):567–582, 1987; Stiglitz, Whither Socialism? MIT Press, Cambridge, MA, and London, England, 1994) views that state control of firms to provide employment is valuable. It further implies that corporate performance and employment objectives can co-exist well together. We formalize Market Mix Theory to reveal its testable implications on dual objectives and performance. We test the notion that Chinese corporations pursue two objectives: maximizing economic value and employment, unlike the singular objective of value maximization in Western firms. As well, we test the benefit of partial privatization. First, we test the market mix theory by studying the relationship between state ownership and employment and financial performance as a combined objective. We show that mixed firms have the highest performance in wealth maximization and employment compared to private and state-controlled firms. Second, we examine Chinese SOEs' Employment with a large sample of 2536 public firms using panel regressions. We find that state ownership and firm employment have a positive relationship. State ownership is positively related to employment stability. Moreover, performance has a negative relationship with state ownership–employment. This result supports our over-employment hypothesis, meaning that economic performance is sacrificed to provide employment. Lastly, we show executive pay for SOE managers is positively related to employment. The employment objective is real in determining state control in Chinese corporations without conflicting to maximize shareholder wealth. Rather, the mixed form of ownership is optimal and vitally contributes overall to the stability and prosperity of China. Our formalization of market mix theory better reflects the reality of motivation, performance and benefits of partial privatization as exemplified in Chinese state-owned enterprises. [ABSTRACT FROM AUTHOR]

This study examines the relationship between executive compensation and banking stability by considering the moderating role of corruption control. This study uses a sample of panel data that includes 74 banks operating in 10 OECD countries during the period 2006–2016. Generalized Moments Method (GMM) regression was used to test the hypotheses. The empirical results show that executive compensation (both fixed and variable) positively affects bank stability. Additionally, effective corruption control moderates the impact of CEO's behavior on banking stability. This study contributes to the existing literature by constructing incentives for CEO and assessing their impact on banking stability, while reflecting the moderating effect of corruption control in the country. These findings are useful for financial regulatory establishments to implement anti-corruption measures in banking institutions, maintain banking stability, and ensure sustainable economic development. [ABSTRACT FROM AUTHOR]

The purpose of this study is to gauge the efficacy of theories of corporate governance in alleviating bankruptcy in the Indian context. The study uses logistic regression and Cox proportional hazard model on a sample of 680 firm observations. Two-stage least squares regression is employed to mitigate endogeneity issues. Main results support agency theory in terms of CEO non-duality, low CEO compensation, and concentrated ownership variables, and defend resource dependence theory with respect to large board size and high directors' attendance, for precluding bankruptcy. Internal and external governance mechanisms are more favourable in 5 to 3 years and 1 to 2 years prior to bankruptcy, respectively. The predictive power of governance models is found to be better than of financial models in 5 to 4 years prior to bankruptcy. Combined models involving both governance and financial variables outperform standalone governance or financial models and are most accurate in the fifth year preceding bankruptcy. Additional tests show that the time availability of independent directors holds more importance over their resourcefulness in the initial years of distress. This study has a few key takeaways for stakeholders, companies, and regulating bodies. It is suggested that regulators enforce CEO non-duality and necessitate a minimum number of board meetings to be attended per year by the directors. This is one of the first studies to develop a corporate governance model on bankruptcy in the Indian context since the enactment of its new bankruptcy code. [ABSTRACT FROM AUTHOR]

Work motivation represents powerful tool that influence employees' behaviour to contribute to organizational business success. Motivating managers is particularly complex issue since they intent to use employees' abilities to the full extent, while they themselves need to be motivated. Many factors influencing manager motivation need to be considered in order to tailor compensation systems to the managers' needs and expectations. This study investigates the impact of several factors: manager's gender, age and education on creating an effective compensation package, including the right proportion of its key components: base salary, short and long term incentives, benefits and perks. A questionnaire-based survey was conducted among managers employed in the Serbian banking sector (sample size was 87). Results showed that base salary and short-term incentives had a stronger positive impact on work performance motivation of managers, while benefits, perks, and long-term incentives were weaker motivators. Women were found to be more motivated with base salary and benefits than men, regardless of their age and education. When investigating the motivational impact of different benefits, the analysis revealed age-differences in subsample of female managers, implying that digital tools are more powerful motivators of women over the age of 45. The study is aimed to assist decision-makers to consider different aspects of motivation when developing compensation models for a certain subgroups of managers, giving the emphasis to the strengths and weaknesses of each compensation component. [ABSTRACT FROM AUTHOR]

We examine whether a CEO's composition of firm stockholdings between restricted and unrestricted shares impacts the firm's payout policy. We document a positive and statistically significant relationship between measures of payout policy and the proportion of CEO total shareholdings that are unrestricted, and this positive relationship holds for alternative measures of payout. This result supports the notion that the composition of a CEO's portfolio of firm stock between restricted and unrestricted shares is a significant determinant of the firm's payout policy. [ABSTRACT FROM AUTHOR]

I examine the relation between investors' uncertainty about managerial horizon and corporate voluntary disclosure. I argue that investors' uncertainty about the manager's short-term stock price concern works as a disclosure friction that allows for a partial disclosure equilibrium. When investors are uncertain about managers' horizons, short-horizon managers can withhold bad news by pooling with long-horizon managers who are not motivated to disclose, regardless of the content of the news, as they are largely indifferent to short-term stock prices. Based on this theoretical framework, I hypothesize that reducing investors' uncertainty about managerial horizon reduces this disclosure friction, thereby pressuring short-horizon managers to provide more voluntary disclosure. I use the executive compensation disclosure mandate as an empirical setting that reduced investors' uncertainty about managerial horizon. Employing a difference-in-differences research design, I find a significant increase in voluntary disclosure for treated firms relative to control firms, largely driven by firms with short-horizon managers. [ABSTRACT FROM AUTHOR]

We investigate how boards incorporate private information about managerial performance in compensation and turnover decisions. Building from the literature documenting that loss firms' publicly available valuation allowance (VA) disclosures contain value-relevant private information, we show that the decision of whether to record a VA also captures contract-relevant private information. We develop an approach to extract a private, firm-specific, time-varying signal of managerial performance by inferring a more positive (negative) private signal when the VA decision suggests the firm expects the loss to be transitory (persistent). Our empirical analyses rely on a joint test of whether the VA decision reflects a private signal of managerial performance and whether the board uses this private information in contracting. Confirming our hypothesis, we document significantly larger discretionary compensation for transitory loss-firm CEOs, relative to persistent loss-firms. We also show that the VA decision informs the weighting of earnings in determining CEO compensation. Additionally, we provide evidence that the likelihood of CEO turnover is lower in transitory loss-firm years, relative to persistent loss-firms. Overall, extracting private information from the VA decision provides an innovative way to extend understanding of how boards use discretion in contracting. [ABSTRACT FROM AUTHOR]

The riskiness developed by Aumann and Serrano (J Polit Econ 116:810–836, 2008) is a measure based on mean, standard deviation and higher order moments. Instead of relying on corporate policies as indirect measures of firm risk, we theoretically show a positive relation between the value of compensation contracts with convex payoff and the firm's option implied riskiness through second-order stochastic dominance and provide supportive empirical evidence of this risk taking incentive. To address the endogeneity concern, we perform a difference-in-difference analysis using the implementation of FAS 123R in 2006, an accounting standard under which firms are required to recognize the fair value-based expense of stock option grants. Firms thereby are discouraged from granting executive stock options (ESO) because of the higher cost resulted from the strict expense recognition required by FAS 123R. Hence, the implementation of FAS 123R results in an exogenous negative shock to the use of ESO. Using this approach, we find a significant decrease in the option implied riskiness subsequent to FAS 123R, supportive of the risk-taking incentive associated with executive stock options. [ABSTRACT FROM AUTHOR]

We examine managers' earnings forecasts for evidence of incentive alignment or subversion characteristics. We find that forecasts by managers compensated via relative performance (RP) goals are more likely to be pessimistic and less accurate than those by managers compensated via absolute performance (AP) goals. For firms not issuing earnings forecasts, disclosures in Form 10-Ks are more pessimistic for RP firms than for AP firms. Furthermore, we find that RP firms perform worse than AP firms in terms of future stock returns. Overall, our evidence is consistent with a proposition that, contrary to sound ethical business practices, RP managers make self-serving earnings disclosures to subvert the efforts of their peers to meet performance targets more easily. [ABSTRACT FROM AUTHOR]

Based on a the micro dataset set of private Chinese-listed companies, this study examines the in detail the impact of hometown connections between chief executive officers (CEOs) and chairmen on CEO compensation–performance sensitivity. The empirical results suggest that a hometown connection prompts both the chairman and the CEO to pay more attention to their reputations, which improves CEO compensation–performance sensitivity. This hometown effect is more pronounced when the hometown culture is strong and the degree of marketization is high. The mechanism test reveals that an externally hierd CEO strengthens the influence of a hometown connection on CEO compensation–performance sensitivity, however, this influence weakens with increasing CEO tenure. Overall, this study enriches the literature on informal institutions and compensation contracts and provides valuable insights for company managers and policymakers in emerging markets. [ABSTRACT FROM AUTHOR]

Does options trading increase or decrease corporate default risk? We answer this question by examining how options trading affects the expected default frequency. The results reveal a positive correlation between equity options trading and future corporate default risk. A single-standard-deviation increase in options trading volume is associated with an increase of over 3% in the expected default probability. Using actual defaults as well as the CDS spread as an alternative proxy for default risk yields consistent results. To corroborate this evidence, we use several econometric specifications, including instrumental variables and the Penny Pilot Program of the Chicago Board Options Exchange as an exogenous shock for the quasi-natural experiment. Moreover, the positive effect of options trading on default risk is more pronounced when firms are more financially distressed and when the CEO holds a smaller stake of inside debt. Further evidence suggests that options trading induces excessive corporate risk-taking activities that destroy firm value and increases CEO compensation convexity. Overall, the results are consistent with an active options market increasing firm default risk by inducing excessive shifting of risk. [ABSTRACT FROM AUTHOR]