Deregulation and the Adaptation of Governance Structures: The Case of the U.S. Airline Industry

Posted: 3 Sep 1997  

Stacey R. Kole

University of Chicago - Booth School of Business

Kenneth Lehn

University of Pittsburgh - Finance Group

Date Written: June 1997

Abstract

Deregulation provides a natural experiment for examining how governance adapts to structural change in the business environment. We investigate the evolution of governance structure--ownership concentration, compensation policy, and board composition--in the U.S. airline industry during a 22- year period surrounding the Airline Deregulation Act of 1978. Consistent with theory, we find that after deregulation 1) equity ownership is more concentrated; 2) CEO pay increases; 3) stock option grants to CEOs increase; and 4) board size decreases. Airlines governance structures gravitate toward the system of governance mechanisms used by unregulated firms. The adaptation process is gradual, however, suggesting that it is costly to alter organizational capital. We also present evidence on the relation between governance structure and firm survival.

JEL Classification: G32, G38, L51, L93

Suggested Citation

Kole, Stacey R. and Lehn, Kenneth, Deregulation and the Adaptation of Governance Structures: The Case of the U.S. Airline Industry (June 1997). Simon School of Business Working Paper FR 97-05. Available at SSRN: https://ssrn.com/abstract=10702

Stacey Reva Kole (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Kenneth Lehn

University of Pittsburgh - Finance Group ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-2034 (Phone)

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