CEO and director compensation, CEO turnover and institutional investors: Is there cronyism in the UK?

Chen, Jie; Goergen, Marc; Leung, Woon Sau; Song, Wei

Abstract

This paper provides new evidence that correlated abnormal compensation of CEOs and directors is symptomatic of agency problems associated with cronyism. We find that director abnormal compensation has a negative impact on the likelihood of CEO turnover and reduces the sensitivity of CEO turnover to poor stock performance. However, for firms with greater institutional ownership the adverse effects of director abnormal compensation are mitigated, and the negative impact of abnormal compensation on firm performance is reduced. These findings suggest that correlated abnormal compensation of CEOs and directors is likely associated with agency problems.

Citation

Chen, J., Goergen, M., Leung, W. S., & Song, W. (2019). CEO and director compensation, CEO turnover and institutional investors: Is there cronyism in the UK?. Journal of Banking and Finance, 103, 18-35. https://doi.org/10.1016/j.jbankfin.2019.03.019

• Journal Article Type: Article
• Acceptance Date: Mar 27, 2019
• Online Publication Date: Mar 28, 2019
• Publication Date: 2019-06
• Deposit Date: Jul 20, 2021
• Publicly Available Date: Jul 20, 2021
• Journal: Journal of Banking and Finance
• Print ISSN: 0378-4266
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 103
• Pages: 18-35
• DOI: https://doi.org/10.1016/j.jbankfin.2019.03.019
• Keywords: Economics and Econometrics; Finance
• Public URL: https://nottingham-repository.worktribe.com/output/5809303
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0378426619300743?via%3Dihub
• Additional Information: This article is maintained by: Elsevier; Article Title: CEO and director compensation, CEO turnover and institutional investors: Is there cronyism in the UK?; Journal Title: Journal of Banking & Finance; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jbankfin.2019.03.019; Content Type: article; Copyright: © 2019 Elsevier B.V. All rights reserved.