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

Schultz, Emma; Tian, Gloria Yuan; Twite, Garry J.

doi:10.2139/ssrn.1652210

Cited by 21 publications

(56 citation statements)

References 42 publications

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“…Core et al (1999) show that the total compensation of US CEOs is strongly related to firm size. Schultz et al (2013) find a similar result for Australian CEOs. Managers of growth firms make more discretionary investments and, hence, are often incentivized with high-powered compensation involving larger equity-linked components (Smith and Watts 1992).…”

Section: Effect Of Board Size On Ceo Compensationsupporting

confidence: 66%

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Board size and firm value: evidence from Australia

et al. 2015

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We study the effect of board size on firm value in Australia. Using a large sample of Australian firms over the period 2001-2011, we find strong evidence of a negative relationship. We show that firms with a large board are associated with CEO compensation that is sensitive to firm size, but not to firm performance. This incentive to accumulate assets is congruent with the fact that firms with a large board also exhibit lower operating performance and higher operating costs. Furthermore, we find that the effect of board size is stronger in small firms. This result might explain why earlier studies, which focused on large Australian firms, found board size to have little impact on firm value.

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Section: Effect Of Board Size On Ceo Compensationsupporting

confidence: 66%

“…Model 1 includes board size, but no interaction terms. In line with Schultz et al (2013), CEO total compensation is positively related to firm size and firm value. It also increases with board size, which suggests that firms with a large board are more generous with their CEOs.…”

Section: Effect Of Board Size On Ceo Compensationmentioning

confidence: 55%

Board size and firm value: evidence from Australia

et al. 2015

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“…Second, Aspris, Foley and Frino (2014) show that toeholds are the main reason (rather than insider trading) for a pre-bid run-up for Australian takeover targets. 26 There are several corporate governance studies conducted in other areas, such as the informativeness of disclosures (Beekes, Brown and Zhang, 2015); probability of default (Schultz, Tan, and Walsh, 2015); firm performance (Christensen, Routledge, and Stewart, 2015); and ownership structure (Schultz, Tian and Twite, 2013;Xu, Liu and Wang, 2015). 27 Chang and Corbitt (2012) find that directors' insider trading can be mitigated if a firm is cross-listed on an exchange with more stringent regulation.…”

Section: Corporate Governancementioning

confidence: 99%

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

2015

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This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals. Abstract This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals.

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“…In the Australian setting Rankin (2007) finds that firm size and complexity, firm financial performance and monitoring, and governance mechanism such as the proportion of external directors on the board are the three main determinants to impact level of executive compensation. This is largely consistent with Schultz, Tian and Twite (2013) who find total pay is determined by firm size, however Schultz et al (2013) also ascertain that pay level is negatively related to leverage and unrelated to revenue growth.…”

Section: Determinants Of Level Of Executive Remunerationsupporting

confidence: 86%

“…While these assertions are yet to be tested, it is clear that some academics do not necessarily view prescriptive regulation as the panacea to executive remuneration issues. Zalewska (2014) Schultz et al (2013) do not observe strong evidence regarding the effect of board structure on overall pay for performance sensitivity. However, they do find that larger boards, more independent boards and remuneration committees are associated with bonuses being more sensitive to accounting performance (using ROA to measure performance rather than stock price performance).…”

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confidence: 87%

Executive Remuneration: Achieving Accountability through Disclosure

Beaumont¹

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

Cited by 21 publications

References 42 publications

Board size and firm value: evidence from Australia

Board size and firm value: evidence from Australia

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

Executive Remuneration: Achieving Accountability through Disclosure

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