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Board Independence, CEO Ownership, and Compensation

Board Independence, CEO Ownership, and Compensation Using the percentage of outside directors as a proxy for board monitoring, we find empirical evidence that board monitoring and CEO pay–performance sensitivity (PPS) are substitutes. In 2002, major US exchanges began to require that the boards of listed firms have more than 50% outside directors. In the case of firms affected by this requirement, their CEO PPS decreased significantly because of a reduction of CEO ownership relative to the control group, especially in the case of firms in which outside directors are better informed. We find that this substitution in governance mechanisms did not change overall firm value. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asia-Pacific Journal of Financial Studies Wiley

Board Independence, CEO Ownership, and Compensation

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Publisher
Wiley
Copyright
Copyright © 2017 Korean Securities Association
ISSN
2041-9945
eISSN
2041-6156
DOI
10.1111/ajfs.12179
Publisher site
See Article on Publisher Site

Abstract

Using the percentage of outside directors as a proxy for board monitoring, we find empirical evidence that board monitoring and CEO pay–performance sensitivity (PPS) are substitutes. In 2002, major US exchanges began to require that the boards of listed firms have more than 50% outside directors. In the case of firms affected by this requirement, their CEO PPS decreased significantly because of a reduction of CEO ownership relative to the control group, especially in the case of firms in which outside directors are better informed. We find that this substitution in governance mechanisms did not change overall firm value.

Journal

Asia-Pacific Journal of Financial Studies – Wiley

Published: Aug 1, 2017

Keywords: ; ; ; ;

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