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CEO and director compensation, CEO turnover and institutional investors: is there cronyism in the UK?

CEO and director compensation, CEO turnover and institutional investors: is there cronyism in the UK?
CEO and director compensation, CEO turnover and institutional investors: is there cronyism in the UK?
This paper provides new evidence that correlated abnormal compensation of CEOs and directors is symptomatic of agency problems associated with cronyism. We find that director abnormal compensation has a negative impact on the likelihood of CEO turnover and reduces the sensitivity of CEO turnover to poor stock performance. However, for firms with greater institutional ownership the adverse effects of director abnormal compensation are mitigated, and the negative impact of abnormal compensation on firm performance is reduced. These findings suggest that correlated abnormal compensation of CEOs and directors is likely associated with agency problems.
0378-4266
18-35
Chen, Jie
7181526d-ec25-480e-a35e-37bf4616e131
Goergen, Marc
d700632f-e4cc-41a7-978f-56b53c7d3764
Leung, Woon Sau
1c82d98c-7cf5-4b3d-a617-b1b083020788
Song, Wei
0d91b8a3-694b-469e-a15e-bba82dc5d090
Chen, Jie
7181526d-ec25-480e-a35e-37bf4616e131
Goergen, Marc
d700632f-e4cc-41a7-978f-56b53c7d3764
Leung, Woon Sau
1c82d98c-7cf5-4b3d-a617-b1b083020788
Song, Wei
0d91b8a3-694b-469e-a15e-bba82dc5d090

Chen, Jie, Goergen, Marc, Leung, Woon Sau and Song, Wei (2019) CEO and director compensation, CEO turnover and institutional investors: is there cronyism in the UK? Journal of Banking & Finance, 103, 18-35. (doi:10.1016/j.jbankfin.2019.03.019).

Record type: Article

Abstract

This paper provides new evidence that correlated abnormal compensation of CEOs and directors is symptomatic of agency problems associated with cronyism. We find that director abnormal compensation has a negative impact on the likelihood of CEO turnover and reduces the sensitivity of CEO turnover to poor stock performance. However, for firms with greater institutional ownership the adverse effects of director abnormal compensation are mitigated, and the negative impact of abnormal compensation on firm performance is reduced. These findings suggest that correlated abnormal compensation of CEOs and directors is likely associated with agency problems.

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CEO and director compensation CEO turnover and institutional investors Is there cronyism in the UK - Accepted Manuscript
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Accepted/In Press date: 27 March 2019
e-pub ahead of print date: 28 March 2019
Published date: 1 June 2019

Identifiers

Local EPrints ID: 433989
URI: http://eprints.soton.ac.uk/id/eprint/433989
ISSN: 0378-4266
PURE UUID: aebb4e0a-1380-4288-91d3-37255d2dcb9e

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Date deposited: 10 Sep 2019 16:30
Last modified: 28 Apr 2022 06:09

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Contributors

Author: Jie Chen
Author: Marc Goergen
Author: Woon Sau Leung
Author: Wei Song

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