There is much debate over the efficacy of corporate governance in mitigating agency costs and improving the correlation between firm performance and Chief Executive Officer (CEO) pay. Research on this topic ranges from theories which maintain that CEO compensation in the U.S. is commensurate with CEO ability, and is therefore justified, to theories which maintain that CEOs are little more than overpaid rent extractors.
I investigate the above dichotomy in the executive compensation literature by examining the impact of corporate governance on excess CEO compensation and firm performance during recessions. Business cycle contractions are challenging times for firms, and arguably a period when stronger corporate governance and CEO ability is significant to the success of the firm. I posit that better governed firms with lower levels of excess compensation outperform their peers in subsequent challenging recessionary periods.
Stock option grants, a frequently used component of CEO pay packages, are thought to better align CEO and shareholder interests. However, with recent financial scandals there is much concern over this form of equity compensation. I examine the use of employee stock option grants in CEO compensation packages and whether such stock option compensation improves the relationship between CEO compensation and firm performance.
My research achieves several aims: it extends the literature on the impact of corporate governance on firm performance by using a recessionary period metric, it examines the effectiveness of corporate governance in mitigating agency costs, it examines excess CEO compensation and this excess compensation connection with CEO ability or CEO rent extraction during recessionary periods, and it examines the impact of stock option grants in CEO pay packages on firm performance during recessionary periods. I find support for a decrease in abnormal return associated with trading on stronger corporate governance and support for rent extraction in the CEO compensation process during the 2001 recession.
|Commitee:||Johnson, Eric, Muthuswamy, Jay, Thornton, John|
|School:||Kent State University|
|School Location:||United States -- Ohio|
|Source:||DAI-A 75/08(E), Dissertation Abstracts International|
|Subjects:||Management, Commerce-Business, Finance|
|Keywords:||CEO compensation, Corporate governance, Reecessions, Stock options|
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