Corporate Governance and Stock-Based Incentives – An Analysis of European Firms

34 Pages Posted: 23 Jul 2009 Last revised: 5 Aug 2010

See all articles by Emily Bünn

Emily Bünn

University of Karlsruhe

Marc Steffen Rapp

University of Marburg - School of Business & Economics; University of Marburg - Marburg Centre for Institutional Economics (MACIE)

Hans Friedrich Schwanecke

Technische Universität München (TUM)

Michael Wolff

University of Göttingen

Date Written: August 4, 2010

Abstract

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.

Keywords: Stock-Based Incentives, Executive Compensation, Corporate Governance, Europe

JEL Classification: G30, M52, J33

Suggested Citation

Bünn, Emily and Rapp, Marc Steffen and Schwanecke, Hans Friedrich and Wolff, Michael, Corporate Governance and Stock-Based Incentives – An Analysis of European Firms (August 4, 2010). Available at SSRN: https://ssrn.com/abstract=1438059 or http://dx.doi.org/10.2139/ssrn.1438059

Emily Bünn

University of Karlsruhe ( email )

Postbox
76128 Karlsruhe, DE 76128
Germany

Marc Steffen Rapp (Contact Author)

University of Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany

University of Marburg - Marburg Centre for Institutional Economics (MACIE) ( email )

Am Plan
Marburg, 35032
Germany

Hans Friedrich Schwanecke

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

Michael Wolff

University of Göttingen ( email )

Platz der Göttinger Sieben 3
Göttingen, DE 37073
Germany

HOME PAGE: http://www.contolling.uni-goettingen.de

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