CEO retirement compensation: Is inside debt excess compensation or a risk management tool?

CEOs face constant scrutiny over their compensation packages. This scrutiny has only intensified amid discussions of CEO-to-employee pay ratios and income inequality nationwide. CEO retirement packages are criticized as camouflage compensation used to award excessive compensation to CEOs and were, prior to 2006, less transparent than they are now. Thanks to the transparent disclosures now required by the SEC, we have a better understanding of the types and amounts of compensation owed to CEOs after they depart or retire, termed inside debt. I investigate whether all CEO inside debt components share similar incentive effects and offers some thoughts on how companies might structure these packages to be most effective. I discuss the structure and incentive effects of the two primary components of inside debt: deferred compensation and supplemental executive retirement plans (SERPs). I explain why inside debt, particularly CEO SERPs, may actually help companies manage firm risk. Finally, I outline the best ways to structure inside debt so that it functions as a resource to manage firm risk and foster a long-term perspective rather than mirroring the incentive effect of equity, increasing risk, and encouraging a myopic focus.     

Dollars and sense: The implications of CEO compensation for organizational performance

Crafting a compensation package for an organization's chief executive officer (CEO) that will help the firm maximize its performance is a vexing challenge for a board of directors. Management theory offers boards several practical hints. A board can put its CEO and the firm in the best position to be successful by (1) creating strong incentives for the CEO to act in the firm's best interest at all times; (2) benchmarking a CEO's performance and compensation relative to that of very high performing CEOs in the industry; (3) diagnosing and responding to CEOs’ feelings about equity relative to their peers; (4) paying a CEO with uniquely valuable knowledge, skills, and ability at the top of the market; (5) offering retention incentives if a proven performer with unique skills is leading a company; (6) resisting the temptation to simply mimic the compensation packages that work for leading firms; and (7) considering candidates’ social ties when recruiting a new CEO.     

Adoption of the Balanced Scorecard: A Contingency Variables Analysis

Our study investigates the adoption of the Balanced Scorecard (BSC) as a strategic planning system. We empirically examine the firm‐level factors—business‐level strategy, firm size, environmental uncertainty, investment in intangible assets, and prior performance— that are posited to differentiate BSC adopters from nonadopters. Drawing on a sample of Canadian firms and utilizing both survey and archival data, we find that BSC adopters (a) are more likely to follow a Prospector or Analyzer business strategy, (b) are significantly larger, (c) exhibit significantly higher environmental uncertainty than nonadopters, and (d) have weaker prior performance. Copyright © 2011 ASAC. Published by John Wiley & Sons, Ltd.     

Institutional Ownership and Corporate Investment Performance

This paper examines the role of institutional investors in improving firm performance through the channel of corporate investment decisions. We find that the interaction effect between institutional ownership and capital expenditures is significantly related to firm performance. We examine this relationship for different types of institutional investors, and find that investment advisors are most effective monitors in improving firm performance through corporate investment. Moreover, we find that the monitoring role of institutional investors becomes more important when internal governance is weak. Institutional ownership and other forms of corporate governance mechanisms (including CEO incentive compensation and control, shareholder right provisions, and board of director monitoring) operate as substitutes, rather than complements, in improving capital expenditure decisions. Copyright © 2012 ASAC. Published by John Wiley & Sons, Ltd.     

Stock price informativeness and analyst coverage

We examine whether more analyst coverage translates into more informative stock prices and apply this to both developed and emerging markets. We measure price informativeness using the association between current stock returns and future earnings. We argue that more informative stock prices contain more information about future earnings. Results indicate that analysts' activities do not contribute to the impounding of future earnings information into current stock prices, in accordance with the view that analysts are outsiders who do not have full access to firm‐level information. We also find that analysts specialize according to industry and that “industry expertise” is limited to developed countries. Overall, our evidence is consistent with the explanation that analysts focus on gathering and mapping industry‐ and market‐level information (macroeconomic information) into stock prices. Copyright © 2013 ASAC. Published by John Wiley & Sons, Ltd.     

The Impact of CEO Characteristics on the Internationalization of SMEs: Evidence from the UK

This study analyses the role of chief executive officers (CEOs) in the internationalization of small‐ and medium‐sized enterprises (SMEs). Specifically, it examines the impact of CEOs' demographic characteristics on the internationalization of SMEs. Based on upper echelons theory, resource‐based view and information processing theory, it is hypothesized that CEO characteristics like age, education, tenure, and political connectedness affect SMEs' international performance. Using the panel data analysis of 283 UK SMEs for the period of 2005 to 2015, this study provides evidence that CEOs' political connections and educational level are positively related to firm internationalization, while age negatively influences firm internationalization. Tenure is found to have a curvilinear relationship with SMEs' internationalization. Copyright © 2018 ASAC. Published by John Wiley & Sons, Ltd.     

Presuccession Performance,CEO Succession,Top Management Team,and Change in a Firm's Internationalization: The Moderating Effect of CEO/Chairperson Dissimilarity

Extending the literature on CEO succession, we found that a succession event together with a change in top management related positively to strategic change toward greater internationalization. In a study of 160 Taiwanese firms, we found relationships between firm performance, outside CEO appointment, change in firm's top management team (TMT), and the degree of a firm's internationalization. Moreover, the positive association between a post succession TMT structural change and degree of internationalization was observed only in those cases where dissimilarity between CEO and chairperson (with respect to educational degree and overseas education) was low. The implications of these findings for scholarship and practice are discussed. Copyright © 2011 ASAC. Published by John Wiley & Sons, Ltd.     

Which Dimension of Corporate Social Responsibility is a Value Driver in the Oil and Gas Industry?

The oil and gas (O&G) industry suffers from a negative perception of poor sustainability. O&G companies are therefore engaged in several socially sustainable activities related to community development and environmental protection. This article determines whether the social, environmental, and economic dimensions of corporate social responsibility (CSR) are equally value‐additive to O&G companies. We measure the company‐specific level of CSR activities from the information provided in the annual financial reports of O&G companies and determine the effects of CSR dimensions on firm value. We find that CSR enhances firm value of O&G companies. While social activities such as employee well‐being and community development are key value‐drivers, environmental and economic sustainable activities have an insignificant impact on the market value of O&G companies. Copyright © 2018 ASAC. Published by John Wiley & Sons, Ltd     

Earnings persistence,fundamentals, and anticipation of breaking earnings strings

Using a sample of firms with consecutive earnings growth for more than 20 quarters (earnings strings), I assess the relationship between earnings persistence and the extent to which investors are able to anticipate breaks of earnings strings. I find that firm‐specific earnings persistence exhibits a concave trend during earnings strings. Stock returns are significantly and positively associated with earnings persistence. Upon breaks of earnings strings, investors’ reactions are more negative for firms with higher earnings persistence—especially those with smaller institutional holdings and analyst coverage, and those with insider selling activities—before the break. Additional analyses show that variations in firms’ economic performance (fundamentals) explain the varying earnings persistence during earnings strings. Copyright © 2015 ASAC. Published by John Wiley & Sons, Ltd.     

Cooperative or competitive in alliance formation: Alliance patterns with respect to rivals

Premised on the assumption that strategic alliance is a type of competitive action toward rivals, this study explores how a firm uses alliances differently with respect to rivals. I distinguish between two types of alliances that directly involve rivals: alliance with a rival and with a rival's partner. The former and the latter reflect cooperative‐ and competitive‐orientations respectively. Further, I investigate what drives a focal firm to adopt a particular alliance rather than another. The findings indicate that the key consideration explaining different alliance patterns is the resource profiles of focal and rival firms. This study contributes to the literature on competitive dynamics and strategic alliance by suggesting a new approach to integrate interfirm competition and cooperation. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.     

How Owners Matter? An Examination of Ownership Type in Corporate Disaster Relief Giving

Little research has investigated the effect of ownership identity (or type) and corporate philanthropy experience on giving. In this research, relying on legitimacy theory, we first assess the effect of ownership identity on corporate philanthropy (CP) in the context of the 2008 earthquake in China. Then we explore moderation effects of firms' prior CP experience and size as proxies for perceived legitimacy on owners' efforts at increasing giving and legitimacy. We find that state and CEO ownership are deterrents, while non‐SOE and institutional ownership enhances giving probability and amount. In addition, there is evidence that firm size and prior CP weaken the effects of institutional ownership on CP. This study provides a complete assessment of owner behaviour. Copyright © 2018 ASAC. Published by John Wiley & Sons, Ltd.     

Dynamic Embeddedness in Chinese Firm Internationalization

This article presents a multilevel framework to analyze the motivations and location choices of Chinese OFDIs. We contribute to theory‐integration on Chinese OFDI flows and patterns by suggesting a framework that combines country‐, industry‐ and firm‐level analyses and by reflecting aspects from the resource‐based view (firm‐specific advantages), institutional‐based view (push/pull home‐ and host‐­country factors), and network‐based view (network relations). We also explicitly incorporate “time” as a variable into our framework by introducing and explaining the concept of dynamic embeddedness as an interaction dimension to reflect the inherent dynamics on all levels and actors. © 2017 Wiley Periodicals, Inc.     

CEO cash compensation determinants: an empirical examination of US airlines

This study empirically investigated the determinants of cash compensation for chief executive officers (CEOs) for US airlines in the post-9.11 period. After an analysis of 53 firm-year observations from 2002 to 2004, we found that the airline CEO cash compensation was positively correlated with the size and revenue efficiency of an airline firm whereas growth, debt use, profitability, and stock performance were irrelevant to the compensation. Larger airlines with better revenue-generating ability tended to offer high cash compensation to their CEOs. Our findings suggest that the pay-for-performance principle has yet to be fully implemented in the airlines industry. To minimize agency problems and enhance the firm value of US airlines, CEO compensation should be based not only on revenue efficiency but also on profitability and stock performance.     

The Role of Firms in Resilient Systems: A Multi‐Level Framework

In this paper, we articulate a multi‐level resilience‐based framework explaining how firms facilitate stronger system‐level resilience. The framework stresses the importance of firm interdependence, describing how pooled versus sequential/reciprocal patterns of interdependence influence the resilience antecedents of diversity, slack, and redundancy. We argue that the inter‐firm practices of self‐governance and supply chain collaboration function to maintain resilience antecedents at more moderate and effective levels. This work builds on prior resilience research that has remained focused on either firm or system levels of analysis by stressing the value of firm interdependence as an important contingency for effective system resilience. Copyright © 2018 ASAC. Published by John Wiley & Sons, Ltd.     

Foreign affiliates' knowledge sourcing from parent firms

This study investigates the factors that influence the extent to which foreign research and development affiliates source knowledge from their parent firms, by developing theoretical hypotheses that predict patterns of foreign affiliates' knowledge sourcing according to their technological capabilities at multiple levels (firm, industry, and country). We use cross‐border mergers and acquisitions and patent citation data from Fortune Global 500 firms to test our theoretical arguments. The findings suggest that a parent firm's foreign affiliate ownership, industry‐level R&D intensity, and home–host country differences in technological capabilities increase foreign affiliates' knowledge sourcing from their parent firms.     

The effects of firm size and firm performance on CEO pay in Canada: A Re-Examination and Extension

Using insights from academic and practitioners' perspectives and recent data, this paper extends the literature by using pay variables that are typically used by practitioners, including those not studied in previous academic research. Consistent with previous findings, firm size, measured by three-year average revenues, has strong effects on CEO pay. However, the relationship is not the same for firms of different sizes. Revenue elasticity is strong among small companies and disappears for medium and large companies. Firm performance, measured by accounting-based measures (return on assets and return on equity), and market-based measures (total shareholder return and shareholder value), have little effects on CEO cash compensation, but strong positive effects on equity compensation. Implications for research and practice are discussed.     

The sensitivity of compensation to social capital: Family CEOs vs. nonfamily CEOs in the family business groups

This study examines the role of CEO social capital, defined as external directorship ties held by the CEO, in determining family vs. nonfamily CEOs' compensation in a network-based business society and governance system. Using a sample of pooled data of family firms listed on the Taiwan Stock Exchange (TSE) from 2000 to 2002, the empirical results show that CEO social capital is an important determinant in setting nonfamily CEOs' pay level, consistent with the expectation of the contractual governance model. By contrast, as expected by relational governance model, family CEOs' social capital is not incentive-relevant. This study extends the literature on CEO compensation by documenting that in a market where guanxi and connections are considered valuable business tools, corporations will be willing to compensate professional CEOs for the social capital that they bring to the firm.     

Does Size Matter in Firm Performance? Evidence from US Public Firms

This paper reexamines the determinants of firm performance and, in particular, the role that firm size plays in profitability. A fixed‐effects dynamic panel data model for over 7,000 US publicly‐held firms during the period 1987–2006 provides evidence that profit rates are positively correlated with firm size in a non‐linear manner, holding an array of firm‐ and industry‐specific characteristics constant. In addition, industry‐specific fixed effects play a negligible role in the presence of firm‐specific fixed effects.     

CEO compensation as a psychological exit barrier: An exploratory test with HMOs

Based on the comprehensive model of Gruca and Sudharshan (1995) concerning barriers to entry, this article posits that realized consequences for the incumbent are psychological exit barriers for the CEO and the organization already in the industry. Executive compensation is a key realized consequence for the incumbent CEO and hence a psychological exit barrier for the incumbent CEO. These issues are tested with a sample of incumbent companies with no hypothesized relationship between executive compensation and profitability. Specifically, nine publicly traded HMOs in the health‐care industry were analyzed over a 3‐year time frame. Because there was a weak relationship between executive compensation and profitability, only weak support was found for the hypothesis concerning executive compensation as a psychological exit barrier. Suggestions for further research are offered to further test the model and explore CEO compensation as a psychological exit barrier. © 2000 John Wiley & Sons, Inc.     

CEO regulatory focus and myopic marketing management

This study details the mechanisms on how CEO regulatory focus affects the salience of the gains versus losses involved in myopic marketing decision-making, and how such CEO psychological attributes interact with internal equity-based compensation, external pressure from equity analysts, and environmental turbulence to affect firms’ myopic marketing management propensities. We find that when faced with short-term earnings pressure to meet earnings expectations and when time is no longer a resource, predominantly promotion-focused are more likely to engage in myopic marketing management to benefit from the temporary stock price increase, which comes from meeting or beating earnings expectations. Conversely, predominantly prevention-focused CEOs are less prone to such short-termist actions which results in long-term value loss. For the moderating variables, we find that: (1) equity-based compensation tends to attenuate myopic marketing tendencies of promotion-focused CEOs but have no impact on prevention-focused CEOs, (2) whether equity analysts improve monitoring or aggravate short-term earnings pressure depends on the CEO’s regulatory focus, and (3) environmental turbulence does not increase the myopic marketing management tendencies of predominantly promotion-focused CEOs but rather intensifies the relunctance of prevention-focused CEOs to take short-termist actions. We further find that myopic marketing management mediates the impact of CEO regulatory focus on future firm performance. These findings have important implications for firms and boards when selecting new CEOs and structuring the compensation of existing CEOs. Firms need to simultaneously consider the fit between the CEOs’ regulatory focus, firms’ needs, the business environment, as well as CEO compensation structure.