Do executives get more pay prior to deteriorations of firm performance?

Wu, Yu-Ching

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https://hdl.handle.net/2142/29563 Copy

Description

Title

Do executives get more pay prior to deteriorations of firm performance?

Author(s)

Wu, Yu-Ching

Issue Date

2012-02-01T00:55:35Z

Director of Research (if dissertation) or Advisor (if thesis)

Chen, Xiaoling

Doctoral Committee Chair(s)

• Sougiannis, Theodore
• Chen, Xiaoling

Committee Member(s)

• Almeida, Heitor
• Li, Yue
• Farrell, Anne M.

Department of Study

Accountancy

Discipline

Accountancy

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• executive compensation
• private information
• rent extraction
• managerial power theory

Abstract

I examine whether executives obtain more direct compensation from their companies in anticipation of deteriorations of firm performance. Using compensation data from S&P 1500 firms, I find that top managers receive more direct compensation in anticipation of the next year’s poor performance. The negative association between compensation and future performance is most significant in firm-years in which insiders sell large amounts of stock, or in which top managers exercise large amounts of options, both of which are signals of top managers’ foreknowledge about future poor performance. Moreover, this phenomenon is more significant in firms with more entrenched CEOs. I also find intensive scrutiny from active shareholders effectively mitigates such behavior. This finding supports the managerial rent-extraction, rather than efficient contracting, explanation for the negative association between current pay and future performance. Consequently, such rent-seeking behavior is followed by even poorer long-term operating and stock performance in the subsequent five years.

Graduation Semester

2011-12

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http://hdl.handle.net/2142/29563

Copyright and License Information

Copyright 2011 Yu-Ching Wu

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