Political Contributions and CEO Pay

AFA 2011 Denver Meetings Paper

2012 Western Finance Association Conference Paper

Posted: 13 Mar 2010 Last revised: 20 Mar 2012

See all articles by Hadiye Aslan

Hadiye Aslan

Georgia State University - Department of Finance

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC) Herzliyah; European Corporate Governance Institute (ECGI)

Date Written: July 10, 2011

Abstract

Using campaign contributions to measure CEO's political connections, we find that a one standard deviation increase in political connections is associated with a 9% increase in CEOs' annual compensation and a 17% decrease in his pay-performance sensitivity. Political rents increase with the strength of the CEO's politician and whether he or she is in power. The effects exist after accounting for potential endogeneity, selection bias and broader measures of social networks. Finally, the portion of the compensation explained by political connections is associated with an average increase of 0.3% in firms' operating performance. Our findings suggest large benefits to shareholders from CEOs' political connections at relatively low direct costs.

JEL Classification: L14, J33, G34

Suggested Citation

Aslan, Hadiye and Grinstein, Yaniv, Political Contributions and CEO Pay (July 10, 2011). AFA 2011 Denver Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1570175

Hadiye Aslan

Georgia State University - Department of Finance ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Yaniv Grinstein (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Sage Hall
Ithaca, NY 14853
United States
607-255-8686 (Phone)
607-254-4590 (Fax)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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