Which came first, CEO compensation or firm performance? The causality dilemma in European companies

Smirnova, Aleksandra S.; Zavertiaeva, Marina

doi:10.1016/j.ribaf.2017.07.009

Cited by 48 publications

(45 citation statements)

References 36 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…In line with Ntim et al (2015) and Smirnova and Zavertiaera (2017), results suggest that an increase in executive compensation may enhance firm accounting performance rather than cause an increase in firm wage expenses, stressing so the important incentive role of CEO compensation, as a corporate governance mechanism. Nevertheless, and compared with the other firms of the sector, investors seem to not appreciate an increase in the CEO gross compensation, hence the negative impact of CEO compensation on the firm Q value.…”

Section: Robustness Testssupporting

confidence: 83%

Section: Robustness Testssupporting

confidence: 62%

“…To resolve these agency problems, many academics argue that attractive executive compensation may be an effective governance mechanism that would be able to align the managerinterest with those of the firm shareholders and so to improve the manager involvement in achieving the shareholders' objectives. For empirical evidence, see Lewellen, Loderer, Martin, and Blume (1992), Jensen and Murphy (1990), Hall and Leibman (1998), Finkelstein and Boyd (1998), Ntim, Lindop, Osei, and Thomas (2015), Smirnova and Zavertiaera (2017), Sheikh, Shah, and Akbar (2018), Sigler (2011), Aslam, Razali, Naveed, and Tahir (2019), Kuo, Lin, and Wang (2013), Ozkan (2011), Ismail, Yabai, and Hahn (2014), Zandi, Shafi, Mohamad, Keongc, and Ehsanullahd (2019), Farmer, Archbold, and Alexandrou (2013), and Jensen, Murphy, and Wruck (2004), among many others. 2 Besides, according to the optimal contracting theory, satisfactory executive pay may result in the highest performance level.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Does CEO compensation matter in boosting firm performance? Evidence from listed French firms

Zoghlami

2020

Manage Decis Econ

View full text Add to dashboard Cite

The paper investigates the impact of chief executive officer (CEO) compensation on firm performance from a sample of 155 listed French companies on SBF 120, over 2009-2018. Findings suggest that an increase in CEO compensation seems to improve the accounting-based firm performance, nevertheless it hurts the firm stock market value. More pronounced results are reported when we control for sector compensation interactions. We argue that attractive compensation may improve the executive services in achieving shareholders' objectives, but investors seem to not appreciate a CEO compensation increase. Based on the agency theory, it might be argued that investors fear possible executive opportunistic behavior encouraging them to enjoy overcompensation.

show abstract

Section: Robustness Testssupporting

confidence: 83%

Section: Robustness Testssupporting

confidence: 62%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Does CEO compensation matter in boosting firm performance? Evidence from listed French firms

Zoghlami

2020

Manage Decis Econ

View full text Add to dashboard Cite

show abstract

“…When it is assumed that the previous success story of the executive is predetermined, we observe the use of lagged value. Moreover, the assumption behind the lead dependent variable is that higher executive compensation can motivate executive to get engaged in corporate lobbying or to expand their networks (Smirnova & Zavertiaeva, 2017). However, we cannot use lead/ lag values of independent variables because for many firms the observations are consistently available for few years and in some cases with a big gap of years.…”

Section: Resultsmentioning

confidence: 99%

“…A firm 1 may engage in corporate lobbying 2 to enhance its competitive position, which enables the firm to enjoy better financial performance compared to their peers in the market (Chen, Parsley, & Yang, 2015). The executives' 3 interests and risk preferences to increase the value of the firms are different from the shareholders' views (Smirnova & Zavertiaeva, 2017). Thus, in empirical literature, we find mixed results about the effect of agency conflict on executive compensation 4 (Cambini, Rondi, & De Masi, 2015).…”

Section: Introductionmentioning

confidence: 99%

Does lobbying of firms complement executive networks in determining executive compensation?

et al. 2020

View full text Add to dashboard Cite

In this paper we predict and find that the lobbying activities of firms can complement executive networks in determining executive compensation. Firms of all sizes, after considering market competition as a governance mechanism, prefer to consider lobbying as a means of networking along with executive level networking to determine executive compensation. The empirical implication of the study provides guidance to scholars who should consider lobbying along with executive networks in determining executive compensation. The composite theoretical underpinning and the importance of information flow through lobbying activities of firms will be an important insight for policy makers involved in determining executive compensation.

show abstract

Does chief executive compensation predict financial performance or inaccurate financial reporting in listed companies: A systematic review

Rousseau,

Kim,

Splenda

et al. 2023

Campbell Systematic Reviews

View full text Add to dashboard Cite

BackgroundFinancial incentives for chief executive officers (CEOs) are thought to motivate them to lead their company toward achieving important business objectives. Based on the Rousseau et al. (2019) protocol, this systematic review assesses the predictive effects of CEO incentives on certain business outcomes.ObjectivesThis review addresses whether CEO financial incentives predict: (1) firm financial performance and (2) financial restatement due to misreporting.Search methodsWe searched nine research databases for published peer‐reviewed literature (to July 23–26, 2021 and an attenuated search from those dates to July 27–31, 2023) and thirteen professional association websites for non‐published gray literature (to August 2021). We also hand‐searched selected relevant journals.Selection criteriaWe reviewed peer‐reviewed and unpublished studies available in English since 1980. Eligible studies regarding our first question assessed CEO financial incentives (1) 1 year or more before the measurement of outcomes, (2) controlled for pre‐incentive firm performance or market conditions, and (3) analyzed CEO financial incentives as predictors of firm outcomes. Eligible studies regarding our second question assessed whether financial restatement had occurred and analyzed effects of CEO incentives on this outcome.Data collection and analysisWe extracted standardized regression coefficients for each effect or converted unstandardized regressions to standardized. Analyses were conducted using STATA. All studies were assessed to have moderate risk of bias.Main resultsFor our first question, 20 studies (15,398 firms) met our criteria for meta‐analysis of effects. Bonuses, the most commonly studied incentive, had a small positive effect on next year's accounting performance metric Return on Assets (ROA, 0.046 [k = 7, 95% confidence interval (CI) = 0.014, 0.078]). The bonus effect in the market‐related metric of Stock Returns (−0.026 [k = 5, 95% CI = −0.119, 0.067]) fell within a CI including 0, as did its effect on another market‐related metric, Market‐to‐Book value (Tobin's Q, 0.028 [k = 3, 95% CI = −0.024, 0.08]). We conclude that Bonuses show no predictive effect on the following year's market‐related metrics but do affect ROA. Stock Options had no effect on next year's ROA (0.027 [k = 5, 0.95% CI = 0.000, 0.052]), nor on Market‐to‐Book Value (Tobin's Q, 0.097 [k = 5, 95% CI = −0.027, 0.220]) or Stock Return (0.042 [k = 6, −0.033, 0.117]), indicating no predictive effect for Stock Options on either accounting or market‐related performance. We sought but found too few studies to report on effects of incentives on other financial outcomes or for lags greater than 1 year. For our second question, three studies (n = 2044 firms) met our criteria. The overall effect size for CEO Incentives on Restatement (−0.09 [k = 3, 95% CI = −0.363, 0.184) fell within a CI including zero. We conclude that current evidence does not support a direct relationship between CEO financial incentives and Restatement.Authors' conclusionsThis review affirms a small effect of CEO Bonuses, but no effect of Stock Options, on the accounting performance metric ROA. In contrast, neither Bonuses nor Stock Options predict a firm's market‐related metrics. CEO incentives also are unrelated to Financial Restatement. Despite widespread use of CEO financial incentives, lack of evidence supporting their use, beyond the bonus‐ROA effect we identify, suggests caution regarding current CEO financial incentive practice and greater consideration of alternative arrangements to enhance firm performance.

show abstract

Which came first, CEO compensation or firm performance? The causality dilemma in European companies

Cited by 48 publications

References 36 publications

Does CEO compensation matter in boosting firm performance? Evidence from listed French firms

Does CEO compensation matter in boosting firm performance? Evidence from listed French firms

Does lobbying of firms complement executive networks in determining executive compensation?

Does chief executive compensation predict financial performance or inaccurate financial reporting in listed companies: A systematic review

Contact Info

Product

Resources

About