Corporate Governance and Stock-Based Incentives – An Analysis of European Firms
University of Karlsruhe
Marc Steffen Rapp
University of Marburg - Faculty of Economics and Business Administration
Hans Friedrich Schwanecke
Technische Universität München (TUM)
University of Göttingen
August 4, 2010
We analyze the role of corporate governance in the use of stock-based incentives for executives of large European listed firms. Using a novel, hand-collected dataset covering non-financial firms from 13 European countries, we are able to distinguish between firm-level governance mechanisms and country-specific external governance structures. In line with the hypothesis of governance substitution, we find that firm size and operational complexity foster the use of stock-based incentives, while firms with large blockholders are less likely to grant such incentives. Examining institutional differences, we find that the origin of law affects the importance of stock-based incentives and that high standards of transparency and disclosure are considered a prerequisite for the dissemination of stock-based incentives. Overall, our results indicate that firms use stock-based incentives to align the interests of executives with those of shareholders whenever the institutional environment ensures sufficient transparency and effective shareholder rights.
Number of Pages in PDF File: 34
Keywords: Stock-Based Incentives, Executive Compensation, Corporate Governance, Europe
JEL Classification: G30, M52, J33working papers series
Date posted: July 23, 2009 ; Last revised: August 5, 2010
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