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We explore the informational properties of earnings that compensation contracting requires for performance measurement. While conditional conservatism could be desirable because it can help to alleviate agency conflicts, its downside relates to the trade-off between conservatism and other important properties, such as persistence. We infer boards' performance measurement preferences from a novel dataset of earnings realizations used to calculate executive bonus payouts (which we label compensation earnings), which can be either GAAP or non-GAAP. On average, compensation earnings do not exhibit any conditional conservatism in the full sample. The lack of conservatism holds even in subsamples with strong corporate governance and subsamples with high ex ante agency costs, suggesting optimal contract design rather than opportunism. Finally, our analyses indicate that compensation earnings are more persistent and informative than GAAP earnings. Overall our results suggest that boards trade off conservatism for other properties in measuring performance for executive compensation. [ABSTRACT FROM AUTHOR]

This study explores the association between board composition and the financial performance of the companies listed on the BSE-500 Index. The authors also analyse whether financial performance mediates the relation between board composition and executive compensation or not. The authors utilised a sample of 319 non-financial firms from the BSE-500 Index from 2010–11 to 2019–20. This time period was purposely chosen to eliminate the consequences of the 2007–2008 global financial crisis to reduce any uncertainty that may influence the company's financial performance. OLS regression techniques with firm fixed and time effects have been incorporated to test the hypotheses. To address the issues of reverse causation and endogeneity, regression models were employed with one-year lagged values for all predicted variables. In addition to OLS, the GMM technique is also used to validate the findings of the study. The findings show that financial performance fully mediates the link between board composition variables, except gender diversity, and executive compensation. These results suggest that a successful corporate governance system relies on the board's composition and how well it supervises its executives. Thus, the board may devise a fair compensation structure which is linked to financial performance to reduce managerial opportunism. This could help in aligning the interest of managers and shareholders, therefore lowering agency costs and boosting financial performance. Although executives are held accountable for the organisation's growth, sometimes they may act in their interest instead of the shareholders. Therefore, this study contributes to the literature on executive compensation and provides insights into reducing the opportunistic behaviour of managers through compensation design. In the pre-existing literature, limited studies are available that examine the direct or indirect effect of financial performance on the association between board composition and executive compensation among Indian companies. This study adds evidence to the literature on board composition of companies, financial performance, and executive compensation. This study is helpful for executives of the company and regulatory authorities while making decisions regarding board composition and executive compensation. This study encourages future researchers to conduct longitudinal studies with a larger sample and a longer time horizon. [ABSTRACT FROM AUTHOR]

We examine how board ethnic diversity impacts executive pay‐to‐performance sensitivity. Using firm‐year observations in Australia for the period 2007–2017, we document that board ethnic diversity leads to higher executive pay‐to‐performance sensitivity. The finding is robust in controlling for endogeneity using instrumental variable regression analysis, as well as using modified measures of board ethnic diversity. We also document that the impact of board ethnic diversity on executive pay‐to‐performance sensitivity is more pronounced for firms suffering from high agency costs and when the CEO's ethnicity is different from that of the majority of the board. This study helps to inform the debate on the issue of board ethnic diversity in Australia. [ABSTRACT FROM AUTHOR]

Copyright of Accounting & Finance / Oblìk ì Fìnansi is the property of Institute of Accounting & Finance and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of Revista Contabilidade, Gestao E Governanca is the property of Revista Contabilidade, Gestao E Governanca and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper studies a unique phenomenon in China's corporate governance—that chief audit executives (CAEs) sit on supervisory boards (CAE duality)—and examines its effects on executive compensation contracts. Using a sample of listed firms between 2010 and 2018, we find a significant positive relation between CAE duality and pay‐for‐performance sensitivity, which suggests that the dual position helps integrate monitoring resources and reduces agency costs. This positive relation is more pronounced when companies face a stricter monitoring environment and in non‐state‐owned enterprises (non‐SOEs) than in SOEs. In addition, we find that the recent reforms on compensation strengthen the role of CAE duality in SOEs. Further analysis identifies the reliability of performance information (i.e., earnings quality) and reduced executive self‐interested behaviours (i.e., perquisite consumption) as the influencing mechanisms that increase the demand for performance‐based compensation and thus improve pay‐for‐performance sensitivity. [ABSTRACT FROM AUTHOR]

We examine the impact of independent directors' reputations on executive pay‐performance sensitivity. Using hand‐collected data from listed Chinese companies from 2012 to 2017, we find a positive association between independent directors' reputations and pay‐performance sensitivity that is more pronounced in companies with less concentrated ownership. Further, the results show that reputable directors have a stronger influence on pay‐performance sensitivity when they sit on a remuneration committee, are in state‐owned enterprises, and are in companies with higher agency costs. Our results highlight the monitoring role of reputable independent directors in setting effective executive compensation contracts. [ABSTRACT FROM AUTHOR]

Organization capital (OC) constitutes a firm's unique, hard‐to‐mimic, hard‐to‐transfer culture, internal knowledge and language, policies and procedures, growth opportunities and information technology, brand name and any other aspects that are not directly related to the production process. In order to disentangle value enhancement from agency costs inherent in the OC, we calibrate systematic risk premiums from the loss of managerial OC rents by decomposing OC into: (1) portable economic rents in the form of disclosed executive compensation and (2) a strategic component that comprised undisclosed, non‐portable OC rents mixed with agency costs. Shareholders in firms with high strategic component (not the portable component) earn an annual systematic risk premium of 4.6%. Disclosures revealing the breakdown between OC and agency costs in the strategic component (earnings surprises, managerial obfuscation and stock mispricing) as well as corporate governance eliminate this risk premium by revealing the OC rents in strategic component and increasing OC portability. [ABSTRACT FROM AUTHOR]

Bank-owned life insurance (BOLI) is life insurance purchased by bank holding companies (BHCs) for key employees, whose proceeds can be shared by the company and employees' heirs. We investigate reported benefits of purchasing BOLI to shed light on the dramatic increase in BOLI assets using a sample of 2040 firm-year observations from 2004 to 2013. We document that a BHC owning BOLI enjoys an average annual earnings increase of $12.5 million and an estimated annual tax shield of $3.4 million. This tax shield is nearly twice the size of average total CEO compensation. We provide empirical evidence that BOLI complements other forms of executive compensation. We empirically test potential agency costs associated with using BOLI as compensation but find no evidence of such costs. Further investigation shows that BHCs use BOLI to attract talented executives and benefit shareholders. We conclude that the significant benefits documented in this study provide convincing rationale for the increasing use of BOLI in recent years. [ABSTRACT FROM AUTHOR]

The current study examines the impact of executives’ compensation on firm over-investment. It uses the panel data of 215 USA non-financial listed firms during the period 2007-2019, and it employs an explanatory research with secondary financial data. The study outcomes show that total executives’ compensation is negatively associated with over-investment. It also found an insignificant relationship between over-investment and stock awards but a significant relationship with stock options, in addition to CEO compensation significantly reducing firms’ overinvestments. The inverse relationship between executive compensations and over-investment is consistent with the agency cost hypothesis. Accordingly, the hypothesis that states that there is a positive relationship between executive compensation and over-investment is accepted. [ABSTRACT FROM AUTHOR]

This paper shows that in the lightly regulated Alternative Investment Market (AIM) voluntary corporate board structures might not reduce agency costs between shareholder and executive directors. In this less regulated market, we find that the extent of debt affects executive pay. In addition, the theoretical determinants of executive pay affect CEO and other executives' pay and incentives differently in this market. We find no evidence that debt levels affect CEO pay in a matched sample of Main Market firms. Our results suggest that debtholders could be better monitors of executive directors' actions, in comparison to voluntary governance committees in less regulated markets. [ABSTRACT FROM AUTHOR]

The degree of ownership concentration may influence executive and board compensation (Bebchuk & Fried, 2003). This article analyzes this relationship. Detailed information about top management and board compensation became available starting in 2010 through new Securities Commission filings. Linear regression models applied to a sample of 315 Brazilian companies traded on the national exchange indicate a negative and statistically significant economic correlation between executive compensation and the degree of ownership concentration. Ceteris paribus, companies with a lower degree of ownership concentration pay higher compensation to top executives. Family controlled companies pay more to their chief executive, but not to the managerial team as a whole, and the compensation of directors increases with a greater proportion of control group members or their relatives on the board. There was support for the Managerial Power Hypothesis in companies with a lower degree of ownership concentration and for the extraction of private benefits in companies where it is greater.

We link the corporate governance literature in financial economics to the agency cost perspective of corporate social responsibility (CSR) to derive theoretical predictions about the relationship between corporate governance and the existence of executive compensation incentives for CSR. We test our predictions using novel executive compensation contract data, and find that firms with more shareholder-friendly corporate governance are more likely to provide compensation to executives linked to firm social performance outcomes. Also, providing executives with direct incentives for CSR is an effective tool to increase firm social performance. The findings provide evidence identifying corporate governance as a determinant of managerial incentives for social performance, and suggest that CSR activities are more likely to be beneficial to shareholders, as opposed to an agency cost. [ABSTRACT FROM AUTHOR]

Managers' pay, and the way it is determined, can have an important impact on the success of firms, and even of whole economies. While there is a rich literature exploring these issues in the for-profit sector, managerial pay at nonprofit firms has received little attention. Yet nonprofit organizations suffer from agency problems that are similar to, or perhaps even more severe than, those observed at for-profit companies. Accordingly, this Article explores the implications for nonprofit governance of a world in which "managerial power" can affect nonprofit pay setting. This Article develops the theory and provides support in the form of original empirical evidence based on data from a large panel of colleges and universities collected across a ten-year period. Our findings support the hypothesis that donors with less leverage suffer from significant agency costs in setting president pay. For example, we find for the first time evidence of an otherwise counterintuitive negative association between the fraction of university revenue provided by current donations and president compensation, which we suggest shows that schools that are less dependent on donors are freer to set high pay. We discuss the implications of these findings for the regulation of nonprofits and for a broader understanding of the pay-setting process at for-profit as well as nonprofit organizations. [ABSTRACT FROM AUTHOR]

The degree of ownership concentration may influence executive and board compensation (Bebchuk & Fried, 2003). This article analyzes this relationship. Detailed information about top management and board compensation became available starting in 2010 through new Securities Commission filings. Linear regression models applied to a sample of 315 Brazilian companies traded on the national exchange indicate a negative and statistically significant economic correlation between executive compensation and the degree of ownership concentration. Ceteris paribus, companies with a lower degree of ownership concentration pay higher compensation to top executives. Family controlled companies pay more to their chief executive, but not to the managerial team as a whole, and the compensation of directors increases with a greater proportion of control group members or their relatives on the board. There was support for the Managerial Power Hypothesis in companies with a lower degree of ownership concentration and for the extraction of private benefits in companies where it is greater. [ABSTRACT FROM AUTHOR]

Manuscript Type Conceptual Research Question/Issue In this paper we discuss three assumptions of agency theory: (1) conflicts of interest between principal and agent, (2) nature of risk, and (3) the proposed internal mechanisms to reduce agency costs. We review criticisms of agency theory's pessimistic assumptions of human behavior and its simplistic view about individual risk preferences to argue how the context may influence both the interest and mechanisms for aligning interest of principals and agents. Research Findings/Insights We draw on alternative theoretical perspectives from behavioral and organizational sciences to describe circumstances under which honesty, loyalty, and trust in agents' behaviors are possible and also the development of cooperative rather than contentious relationships. Theoretical/Academic Implications This study explores the boundary conditions of traditional agency theory in the hope of extending agency theory outside its current contextual boundaries. In doing so, we provide a more robust and exhaustive view of the economic exchange between principals and agents. Practitioner/Policy Implications This study offers insights to managers about how intrinsic incentives may provide an alternative mechanism of control over agents' behavior to extrinsic incentives prescribed by traditional agency theory. Indeed, intrinsic incentives of personal satisfaction and identification with organizational objects, combined with implicit social obligations and reciprocity may, under certain circumstances, provide stronger restraints on agent opportunism than the use of traditional extrinsic rewards in the form of incentive alignment. [ABSTRACT FROM AUTHOR]

Lease financing is a well-recognized mechanism for reducing the agency costs of debt. This study examines whether firms that attempt to control the agency costs of equity through strong governance structures, including Chief Executive Officer compensation alignment and board structure, are more likely to use an agency cost reducing debt structure, such as leasing. For a sample of large firms, we find that firms who use more incentive compensation and have more outside directors also tend to use more lease financing, suggesting these agency cost reducing measures are complements. [ABSTRACT FROM AUTHOR]

This Article identifies a cost to public investors of tying executive pay to the future value of a firm’s stock - even its long-term value. In particular, such an arrangement can incentivize executives to engage in share repurchases (when the current stock price is low) and equity issuances (when the current stock price is high) that reduce “aggregate shareholder value,” the amount of value flowing to all the firm’s shareholders over time. The Article also puts forward a mechanism that ties executive pay to aggregate shareholder value and thereby eliminates the identified distortions.