Founding Family Firms,CEO Incentive Pay,and Dual Agency Problems

This paper contributes to the literature on agency theory by examining relations between family involvement and CEO compensation. Using a panel of 362 small U.S. listed firms, we analyze how founding families influence firm performance through option portfolio price sensitivity. Consistent with the dual agency framework, we find that family firms have lower CEO incentive pay, which is further reduced by higher executive ownership. Interestingly, such incentive pay offsets the positive impact that families have on firm valuation. Collectively, our results show that, compared with nonfamily firms, lower incentive pay adopted by family firms due to lower agency costs mitigates the direct effect of family involvement on firm performance. Once accounting for CEO incentive pay, we do not observe performance differences between family and nonfamily firms.     

控股股东所有权结构、产权性质与高管薪酬决定的掏空效应

本文基于股东间代理问题视角,利用2007~2011年我国A股上市公司数据,实证考察了高管薪酬的过度支付是否会成为控股股东实现控制权私利的一种路径。研究发现：在地方国企中,高管薪酬水平与控股股东的现金流权显著负相关,与控股股东控制权与现金流权的两权分离度显著正相关,但这一结论在央企和民营企业中均不成立。这表明地方国企高管薪酬决定存在明显的掏空效应。本文的研究结论对于深化国企高管薪酬管理制度改革具有政策启示涵义。     

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.     

CEO turnover and shareholder wealth: Evidence from CEO power in Taiwan

This paper investigates the relationship between CEO turnovers and shareholder wealth and/or the volatility of firm performance, and examines whether CEO power matters in this relationship. Successors tend to possess less power than predecessors. The announcement effects of CEO turnovers present higher abnormal returns for turnovers in which predecessors and successors share a similar power level and a lower volatility for turnovers in which successors have less power. Volatility is lower and liquidity is higher when CEO turnovers involve successors with less power.     

财务困境中CEO权力、高管层薪酬差距与公司业绩

以2005—2009年深沪两市上市公司为样本,设定财务困境公司与财务健康公司两个对比组,分析CEO权力对高管层薪酬差距的影响,以及薪酬差距、CEO权力和两者的交互效应对公司业绩的影响。研究发现:CEO强权在财务困境公司中不会导致高管层薪酬差距显著扩大,而在财务健康公司则会;财务困境公司中较大的高管层薪酬差距和CEO强权均能促进公司业绩的提升,且比财务健康公司更显著;CEO权力与薪酬差距对公司业绩的影响在财务困境公司中呈互补关系,而在财务健康公司中呈替代关系。     

Americanization as a driver of CEO pay in Europe: The moderating role of CEO power

This paper examines the relationship between Americanization and CEO pay levels in Europe and how this relationship is moderated by CEO power. Based on neo-institutional theory, our study provides empirical support for a link between Americanization and CEO pay levels. Drawing on a sample of large listed European firms, our results suggest that various dimensions of Americanization, i.e., Americanization of the CEO, of the firm and of the industry, can be associated with higher CEO pay. Combining neo-institutional approaches with managerial power perspectives, we show that Americanization can have an even stronger effect on pay when the CEO is powerful.     

What Does CEOs’ Pay-for-Performance Reveal About Shareholders’ Attitude Toward Earnings Overstatements?

If overstatements were a symptom of the agency conflict, pay-for-performance sensitivities should have increased in response to the additional penalties for misreporting imposed by SOX. Our finding of their decrease is inconsistent with the view that overstatements were an unintended consequence of incentive pay prior to 2002. To corroborate our interpretation, we show that (i) CEO pay-for-performance sensitivities are higher among firms whose shareholders stand to benefit from overstatements; (ii) this cross-sectional relationship weakens significantly after SOX; and (iii) the within-firm decrease in pay-for-performance sensitivity is most pronounced among firms with high pre-SOX shareholder benefits from overstatements.     

A Rose by Any Other Name: Are Family Firms Named After Their Founding Families Rewarded More for Their New Product Introductions?

The authors explore the relation between the way different family firms are named, and the shareholder value impact of these firms’ new product introductions. Using an event study of 1,294 product introduction announcements of 107 publicly listed U.S. family firms, the authors find that the presence of the founding family’s name as part of a family firm’s name acts as a valuable firm resource, increasing the abnormal stock returns surrounding the firm’s new product introductions. Superior returns to family-named firms’ new product introductions are partially mediated by these firms’ history of ethical product-related behavior: family-named firms, particularly those with corporate branding, and those wherein a founding family member holds the CEO or chairman position, are more likely to exhibit a history of avoiding such product-related controversies as product safety issues, and deceptive advertising. The authors highlight the managerial and theoretical contributions of this research.     

非家族高管更加“患不均”？——家族企业CEO身份对高管薪酬差距的影响研究

文章通过衡量家族企业中CEO与非家族高管之间的薪酬差距,试图探讨非家族高管的激励问题。依据社会比较理论和锦标赛理论的不同解释逻辑,并基于家族高管与非家族高管的不同特点,文章首先考察影响高管薪酬差距的前因变量,提出非家族CEO与薪酬差距之间关系的竞争性假设,并探讨薪酬差距对企业绩效的影响作用。利用2009〖KG-*4〗-〖KG-*6〗2016年中国家族上市公司数据,研究发现,当非家族成员担任CEO时,CEO与非家族高管之间的薪酬差距减小;另外,薪酬差距与企业绩效呈负相关关系,说明非家族高管中“不均”的薪酬安排会影响企业绩效。综合来看,相比锦标赛理论,社会比较理论对解释家族企业CEO身份对其与非家族高管之间薪酬差距的影响更具预测力与解释力。     

Inherited corporate control and returns on investment

This paper contributes to the literature on management in family firms by investigating how succession in family firms affects returns on investment. The identities of the chief executive officer (CEO) and the chairman of the board (COB) were used to establish whether the management of the firm can be characterized as founder, descendant, or external management. A unique, unbalanced panel data set on listed Swedish firms covering the period from 1990 to 2005 was used in the analysis. The results show that founder management has a positive effect on the returns on investment in family firms, whereas descendant management has a negative impact. An external CEO as a successor in family firms leads to more efficient investment policies with increased firm value as a result. That is, when studying corporate governance in family firms it is important to account for what type of management the firm has. Further studies are required to understand the relationship between ownership, control, management, and firm performance.     

CEO Attributes,Board Composition,and Acquirer Value Creation: A Canadian Study

We examined CEO attributes, board composition, and ownership structure for their relationship to the share performance of the acquiring company around the acquisition announcement. Based on 273 acquisitions by Canadian firms from 1998 through 2002, we have shown that the levels of CEO and director ownership as well as the level of board independence were positively associated with the short‐term financial performance of the acquirer. Board size was negatively related to value creation. Finally, cash‐based deals and cross‐border transactions were also positively related to increases in shareholder wealth for the acquirer. Copyright © 2011 ASAC. Published by John Wiley & Sons, Ltd.     

Earnings Quality in Private SMEs: Do CEO Demographics Matter?

This study investigates the impact of CEO demographics on earnings quality for private SMEs. Using a 2012 sample of 30,476 French firms, we first find strong empirical support for a gender effect: female‐run firms engage in less earnings management than do male‐run firms. This result is consistent with female CEOs being more risk averse than their male counterparts are when making financial decisions. Second, CEO age is negatively correlated with the magnitude of discretionary accruals, and the relationship between gender and earnings quality is stronger for older CEOs. Overall, our findings suggest that CEO demographics affect the quality of accounting information.     

Corporate Governance and the CEO Pay–Performance Link: Australian Evidence

We examine the influence of corporate governance mechanisms, namely blockholdings and board structure, on CEO pay–performance sensitivity in listed Australian firms. Results highlight blockholders' role in shaping observed pay–performance associations and their impact varying with their independence and relative magnitude of ownership. Monitoring blockholders increase the sensitivity of long‐term at‐risk pay to performance, better aligning manager and shareholder interests. However, consistent with a shorter investment horizon, insider blockholders increase (decrease) the responsiveness of cash bonuses (long‐term at‐risk pay). Finally, consistent with them affording less‐effective monitoring, larger boards raise (lower) the sensitivity of known pay (long‐term at‐risk pay) to performance.     

Executive Compensation and Corporate Fraud in China

This study investigates the relation between CEO compensation and corporate fraud in China. We document a significantly negative correlation between CEO compensation and corporate fraud using data on publicly traded firms between 2005 and 2010. Our findings are consistent with the hypothesis that firms penalize CEOs for fraud by lowering their pay. We also find that CEO compensation is lower in firms that commit more severe frauds. Panel data fixed effects and propensity score methods are used to demonstrate these effects. Our results also indicate that corporate governance mechanisms influence the magnitude of punishment. We find that CEOs of privately controlled firms, firms that split the posts of CEO and chairman, and CEOs of firms located in developed regions suffer larger compensation penalties for committing financial fraud. Finally, we show that CEOs at firms that commit fraud are more likely to be replaced compared to those at non-fraud firms.     

How Does the Largest Shareholder Affect Dividends?

Focusing on the legal protection of minority shareholders in Japan, which suggests that manager‐owned firms are better governed than corporation‐owned firms, this study presents a new test of two dividend models: the substitute model and the outcome model. In support of the latter, I find that manager‐owned firms pay higher dividends than corporation‐owned firms. The paper also examines the association between ownership by the largest shareholder and dividend payments. I find an inverted U‐shaped relationship for manager‐owned firms and a U‐shaped relationship for corporation‐owned firms between them. These results can be explained by the benefits and drawbacks of concentrated ownership.     

Stock options,restricted stock,salary, or bonus? Managing CEO compensation to maximize organizational performance

CEO pay has gone through remarkable changes over the past two decades. The most striking new features have been the increased use of stock options in the early 2000s, and of restricted stock since then. Both forms of stock-based compensation are intended to resolve the agency problem that occurs when CEOs do not act in the best interests of stockholders, but each has its advantages and limitations. In this instalment of Organizational Performance, we discuss the history of their use and similarities and differences between the two, and argue that both are often overused. Bonuses based on strategic goals, on the other hand, may be underused. We conclude with a contextual approach to guide boards of directors in making choices among the forms of CEO compensation—stock options, restricted stock, salary, and bonus—to incentivize CEOs to work toward maximizing organizational performance. Briefly, stock options are most appropriate for growth firms, and restricted stock for stable firms. Both forms of stock-based compensation are more appropriate for new than for long-tenured CEOs.     

Board Pay and the Separation of Ownership from Control in U.K. SMEs

This paper examines Board pay for a sample of 571 U.K. SMEs from 1991 to 1995. Approximately half of the sample were closely-held (i.e., owner-managed) firms which allowed empirical testing of models of the relationship between Board pay and ownership from control characteristics. Consistent with their need to align shareholder and manager incentives, the results indicate that the change in nonclosely-held SME Board pay is significantly related to both external market pay comparisons and “benchmark” profits. This contrasts with the empirical results for the closely-held firms where Board pay awards are typically highly sensitive to current total profits but wholly unrelated to external market pay levels.     

Managerial Incentives and Investment Policy in Family Firms: Evidence from a Structural Analysis

This paper provides evidence that CEO incentive pay mediates the effect of family preferences on corporate investment policy. Our study focuses on the option portfolio volatility sensitivity vega, which motivates the risk‐taking behavior of undiversified managers. After controlling for factors that affect incentive pay and investment policy simultaneously, we find that one‐third of underinvestment in riskier R&D projects in active family firms can be attributed to a significantly lower vega. Passive family firms allocate more capital to R&D as opposed to active family firms, and are more active in M&A deal making. In contrast to many prior studies, pay incentives and families are not associated with capital expenditures. Overall, our empirical results suggest that CEO pay incentives induce investment policy contingent on firm risk. Family CEO incentive pay manifests the family preference for lower risk, especially in firms with higher firm risk. Nonetheless, after replacing family CEOs with outside professionals, investments in both R&D and M&A increase, which is consistent with the family preference for extended investment horizons. Interestingly, such a preference seems not to be manifested in incentive pay.     

Causality Between Corporate Social Performance and Financial Performance: Evidence from Canadian Firms

This study assesses the causal relationship between corporate social performance (CSP) and financial performance (FP). We perform our empirical analyses on a sample of 179 publicly held Canadian firms and use the measures of CSP provided by Canadian Social Investment Database for the years 2004 and 2005. Using the “Granger causality” approach, we find no significant relationship between a composite measure of a firm’s CSP and FP, except for market returns. However, using individual measures of CSP, we find a robust significant negative impact of the environmental dimension of CSP and three measures of FP, namely return on assets, return on equity, and market returns. This latter finding is consistent, at least in the short run, with the trade-off hypothesis and, in part, with the negative synergy hypothesis which states that socially responsible firms experience lower profits and reduced shareholder wealth, which in turn limits the socially responsible investments.     

CEOs’ regulatory focus and firm internationalization: The moderating effects of CEO overconfidence,narcissism and career horizon

While the international business literature has mainly focused on the firm- or industry-level antecedents of internationalization strategies, scholars have recently advocated a greater focus on the microfoundations of firms’ strategic decisions. Building on the regulatory focus theory, this study focuses on how CEO promotion and prevention foci impact firm internationalization. Looking into dispositional and situational attributions, this study also theorizes how these factors moderate the relationship between a CEO’s psychological motivations and firm internationalization. Using data from publicly traded US firms listed in the Fortune 500, the findings of this study show that a CEO’s promotion focus is positively associated with the extent of a firm’s internationalization, whereas a CEO’s strong prevention focus limits the extent of a firm’s internationalization. The findings also reveal that the relationship between a CEO’s regulatory focus and the extent of a firm’s internationalization is moderated by a CEO’s overconfidence, narcissism, and career horizon. These findings have important research and managerial implications for firms engaged in international business.