Journal of Financial Economics Vol. 133 No. 2 2019

Does social capital mitigate agency problems? Evidence from Chief Executive Officer (CEO) compensation

Chun Keung Hoi^1,2; Qiang Wu³; Hao Zhang¹

¹ Rochester Institute of Technology · ² University of Groningen · ³ Rensselaer Polytechnic Institute

Abstract

We find that social capital, as captured by secular norms and social networks surrounding corporate headquarters, is negatively associated with levels of CEO compensation. This relation holds in a range of robustness tests including those that address omitted variable bias and reverse causality. Additionally, social capital reduces the likelihood that firms make opportunistic option grant awards that unduly favor CEOs, including lucky awards, backdated awards, and unscheduled awards. Social capital also lessens the accretive effect of CEO power on CEO compensation. These findings indicate that social capital mitigates agency problems by restraining managerial rent extraction in CEO compensation.

DOI

10.1016/j.jfineco.2019.02.009

Volume

133

Issue

2

Pages

498-519

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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