Executive compensation in firms with concentrated control: The impact of dual class structure and family management

Amoako‐Adu, Ben; Baulkaran, Vishaal; Smith, Brian F.

doi:10.1016/j.jcorpfin.2011.09.003

Cited by 53 publications

(31 citation statements)

References 41 publications

(48 reference statements)

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“…Amoako-Adu et al (2011) also find a positive association of disproportionate insider control and the use of performance-based compensation for family members in executive positions. 7 In addition, Jordan et al (2014) demonstrate that dual-class firms set their dividend policy consistent with a desire to reduce agency costs.…”

Section: Literature Review and Research Expectationsmentioning

confidence: 73%

“…8 The role of the board of directors in firms characterized by disproportionate insider control has not been comprehensively investigated to date. The substitution hypothesis, for which Dey et al (in press) and Amoako-Adu et al (2011) provide some evidence, suggests a positive association of disproportionate insider control and "good" board characteristics; at the same time entrenchment effects from disproportionate voting rights, emphasized for instance by Masulis et al (2009), point to a possible negative association. We test the conflicting predictions for the effects of disproportionate insider control on board composition under the substitution and entrenchment hypotheses comprehensively by examining five attributes of the board of directors, which prior literature suggests have a bearing on board effectiveness: board size, CEO-chairman identity, board of director experience, director tenure/age, and director independence.…”

Section: Literature Review and Research Expectationsmentioning

confidence: 99%

“…Finally, Lehn et al (1990) show that higher growth opportunities as well as lower tax liabilities explain firms' decision to elect a dual-class equity structure in their sample of public firms conducting either a dual-class recapitalization or a LBO in the 1977-1987 period. To control for the possibility that possible differences in these two characteristics have a bearing on our findings, we follow Amoako-Adu et al (2011) and Lehn et al (1990) and control for two proxies for firms' growth opportunities, sales growth, and the market/book ratio, and two proxies for the possible extent of firms' tax liability, the ratio of income taxes to equity and financial leverage. We control for sales growth and leverage in all regressions (models (2) and (3)).…”

Section: Robustness Testsmentioning

confidence: 99%

See 2 more Smart Citations

Disproportionate insider control and board of director characteristics

Baran

Forst

2015

Journal of Corporate Finance

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Section: Literature Review and Research Expectationsmentioning

confidence: 73%

Section: Literature Review and Research Expectationsmentioning

confidence: 99%

Section: Robustness Testsmentioning

confidence: 99%

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Disproportionate insider control and board of director characteristics

Baran

Forst

2015

Journal of Corporate Finance

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“…These results are consistent with our model, in which paying money and owning stock can be substitutes. See Amoako-Adu et al, 2011). Another study found "a consistently negative correlation between firm value and blockholder dispersion, as well as between firm value and the total ownership stake of blockholders.The authors also noted: "Our results for blockholder size and presence suggest there may be room for private benefits of control by blockholders, possibly at the expense of other stakeholders.¨ (Konjin, Kraussl & Lucas 1338 (2011) at 1338).…”

Section: Cheating and Judicial Reviewmentioning

confidence: 98%

Corporate control and credible commitment

Gilson

Schwartz

2015

International Review of Law and Economics

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a b s t r a c tThe separation of control and ownership -the ability of a small group effectively to control a company though holding a minority of its cash flow rights -is common throughout the world, but also is commonly decried. The control group, it is thought, will use its position to consume excessive amounts of the firm's returns, and this injures minority shareholders in two ways: there is less money and the controllers are not maximizing firm value. To the contrary, we argue here that there is an optimal share of the firm that induces the control group to maximize shareholder value while inducing investors to fund the firm's projects. The concern that controlled companies raise is that the controlling group cannot easily commit not to consume more than the optimal share. A firm's cost of capital is increasing in the controllers' inability to solve this credibility problem because potential investors will charge the firm for later consuming private benefits. Today, accurate judicial review of controlled transactions under mandatory fiduciary rules helps controllers to commit not to take more than the optimal share. Private contracting and judicial review are strong complements, however. Therefore, our principal normative recommendation is to open up the contracting space by reducing the fiduciary rules to defaults. This reform would be less helpful in developing countries that lack effective legal systems. The public corporations in such countries, however, also have controlling shareholders. We explore various non-legal methods by which these shareholders credibly commit to cap private benefits, although we also show that these methods are less efficient in a mature legal system than contracting would be.

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“…Furthermore, controllers of group-affiliated companies prefer to increase chair and board compensation rather than dividends as their cash-flow rights decrease. Amoako-Adu et al (2011) compare executive compensation in dual class firms with that in single class companies with concentrated control in Canada. They find that family members in executive positions in dual class companies are paid significantly more than those of single class companies with concentrated control.…”

Section: Optimal Incentive Structure Of Director Compensationmentioning

confidence: 99%

Director Optimal Pay against Fat Cats in Taiwan

Lin

Wang

Peng

2015

AFR

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Due to the overcompensation phenomenon that exists in Taiwan, the "fat cat " issue continues to persist; therefore, vast reforms in regards to director compensation have been prompted in recent years. This investigation assessed 665 Taiwanese firms listed on the Taiwanese Stock exchange over a 10-year period (2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011). The main purpose is to test whether there is an optimal level of director compensation, which maximizes firm value. This study adopts Tobin's Q as the proxy for firm value and finds that director compensation between 0.0283 percent and 2.3077 percent is an optimal level to maximize firm value. These results show that when control-affiliated directors have incentives to increase firm value, they serve as reliable monitors due to their individual financial gains.

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Executive compensation in firms with concentrated control: The impact of dual class structure and family management

Cited by 53 publications

References 41 publications

Disproportionate insider control and board of director characteristics

Disproportionate insider control and board of director characteristics

Corporate control and credible commitment

Director Optimal Pay against Fat Cats in Taiwan

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