Ceo compensation, shareholder rights, and corporate governance: An empirical investigation

Pornsit Jiraporn, Young Sang Kim, Wallace N. Davidson

Research output: Contribution to journalArticlepeer-review

21 Scopus citations

Abstract

We investigate whether CEO compensation is influenced by the strength of shareholder rights. Our evidence reveals that CEOs of firms where shareholder rights are weak obtain more favorable compensation. It is also found that higher CEO pay is associated with a higher degree of potential managerial entrenchment. Additionally, CEOs of firms with governance provisions that offer them protection from takeovers enjoy more generous pay. We also examine the change in CEO compensation relative to the change in shareholders' wealth. The evidence shows that when there is an increase in shareholders' wealth, the CEO is able to obtain higher incremental compensation when shareholder rights are weak. On the contrary, when shareholders' wealth falls, there is no corresponding decline in CEO compensation when shareholder rights are weal Given the empirical evidence, we argue that CEO compensation practices reflect rent expropriation rather than optimal contracting.

Original languageEnglish (US)
Pages (from-to)242-258
Number of pages17
JournalJournal of Economics and Finance
Volume29
Issue number2
DOIs
StatePublished - Jan 1 2005

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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