Chief Executive Compensation: An Empirical Study of Fat Cat CEOs

The International Journal of Business and Finance Research, v. 7 (2) p. 27-42

16 Pages Posted: 29 Jan 2013

See all articles by Dan Lin

Dan Lin

Takming University of Science and Technology

Hsien-Chang Kuo

Takming College - Department of Banking and Finance

Lie-Huey Wang

Ming Chuan University

Date Written: 2013

Abstract

This paper empirically tests the determinants of executive pay. In order to gain more understanding of the fat cat problem that have been subject to hot debate, we also examine a sample firms that suffer from the “fat cat problem”, defined as firms with poor performance while their Chief Executive Offers (CEOs) receive high compensation. Based on a sample of 903 US firms between 2007 and 2010, we find that there is a substitution effect between CEO compensation and the level of CEO ownership and that larger firms give higher pay to their CEOs. When the sample is limited to fat cat companies only, we find that tenure and firm size are significantly positively associated with CEO compensation. The firm size, leverage ratio and investment opportunities are found to be significantly associated with the CEO total compensation when the sample is limited to fat cat companies in the financial services industries. Overall, firm size appears to be the most important determinant of CEO compensation and that there is a general lack of linkage between pay and performance. The evidence thus calls for public attention for reexamining the effectiveness of current pay system.

Keywords: Executive Compensation, Fat Cat, Pay-Performance Relationship

JEL Classification: G34, M52

Suggested Citation

Lin, Dan and Kuo, Hsien-Chang and Wang, Lie-Huey, Chief Executive Compensation: An Empirical Study of Fat Cat CEOs (2013). The International Journal of Business and Finance Research, v. 7 (2) p. 27-42, Available at SSRN: https://ssrn.com/abstract=2149110

Dan Lin (Contact Author)

Takming University of Science and Technology ( email )

56, Sec 1, Huan Shan Rd.
Nei Hu Dist.
Taipei City
Taiwan

Hsien-Chang Kuo

Takming College - Department of Banking and Finance ( email )

Huanshan Road
Taipei City, Taiwan 11451
China

Lie-Huey Wang

Ming Chuan University ( email )

No. 250, Section 5
Zhongshan North Road
Taipei, 111
Taiwan

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,062
Abstract Views
4,421
Rank
38,602
PlumX Metrics