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Journal of Banking & Finance Vol. 103 2019

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

Jie Chen1; Marc Goergen2,3; Woon Sau Leung4; Wei Song5

1 University of Leeds · 2 IE University · 3 European Corporate Governance Institute · 4 Cardiff University · 5 Swansea University

open access

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.

DOI
10.1016/j.jbankfin.2019.03.019
Volume
103
Pages
18-35
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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