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Agency Theory Revisited: CEO Returns and Shareholder Interest Alignment

Anthony J. Nyberg
University of Wisconsin - Madison - Weinert Center for Entrepreneurship

Ingrid Smithey Fulmer
Georgia Institute of Technology - College of Management

Barry Gerhart
University of Wisconsin - Madison - Department of Management and Human Resources

Mason A. Carpenter
University of Wisconsin-Madison

Academy of Management Journal, Forthcoming

Abstract:
Agency theory suggests that there may be managerial mischief when the interests of owners and managers (agents) diverge; one possible solution to this agency problem is the alignment of owner and agent interests through agent compensation and equity ownership. We develop the theoretical concept of CEO returns, and empirically estimate the magnitude of financial alignment, as measured by the relationship between CEO returns and shareholder returns. Our results, based on this new conceptualization and corresponding measurement, suggest stronger alignment than reported in previous work. We find that the magnitude of this alignment relationship plays a positive role in predicting subsequent firm performance; however, it does so in ways not clearly articulated or tested in prior CEO compensation research.

Keywords: CEO Compensation, Executive Compensation, Incentive Alignment, Agency Theory

Accepted Paper Series

Date posted: October 04, 2009 ; Last revised: October 12, 2009

Suggested Citation

Nyberg, Anthony J., Smithey Fulmer, Ingrid, Gerhart, Barry and Carpenter, Mason A., Agency Theory Revisited: CEO Returns and Shareholder Interest Alignment (October 2, 2009). Academy of Management Journal, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1481927

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Contact Information

Anthony Justin Nyberg (Contact Author) University of Wisconsin - Madison - Weinert Center for Entrepreneurship ( email ) United States
Mason A. Carpenter University of Wisconsin-Madison ( email ) 975 University Avenue Madison, WI 53706 United States 608 262 9449 (Phone) 608 262 8773 (Fax) HOME PAGE: http://www.bus.wisc.edu
Barry Gerhart University of Wisconsin - Madison - Department of Management and Human Resources ( email ) Madison, WI United States
Ingrid Smithey Fulmer Georgia Institute of Technology - College of Management ( email ) Atlanta, GA 30332 United States

Abstract

Date posted: October 04, 2009 ; Last revised: October 12, 2009

Suggested Citation

Contact Information

Anthony Justin Nyberg (Contact Author)

Mason A. Carpenter

Barry Gerhart

Ingrid Smithey Fulmer