Agency Problem II and Convergence in CEO Pay

42 Pages Posted: 17 Nov 2012

See all articles by Janto Haman

Janto Haman

Monash University

Hristos Doucouliagos

Deakin University - School of Accounting, Economics and Finance

Michael Graham

Stockholm University - School of Business

Date Written: November 13, 2012

Abstract

Convergence in CEO pay occurs when pay differentials narrow over time. We analyze and compare differences in the rate of convergence in CEO pay of Australian listed firms with high shareholding concentration (HSC) and without, for the period 1992 to 2009. We find zero and negative pay-for-performance and pay-for-firm size associations in HSC firms, indicating entrenchment and suboptimal CEO contract design. In contrast, positive pay-for-performance effects exist in non-HSC firms. The rate of convergence in CEO pay is higher in HSC firms. While there is relatively strong investor protection, our findings indicate that Australian HSC firms face high private benefits of control and one avenue for extracting these benefits is through a higher rate of convergence in CEO pay.

Keywords: Agency Problem II, CEO Pay, Convergence, Shareholding Concentration

JEL Classification: G30, J33, M52

Suggested Citation

Haman, Janto and Doucouliagos, Chris (Hristos) and Graham, Michael, Agency Problem II and Convergence in CEO Pay (November 13, 2012). Available at SSRN: https://ssrn.com/abstract=2176615 or http://dx.doi.org/10.2139/ssrn.2176615

Janto Haman (Contact Author)

Monash University ( email )

Caulfield, Victoria 3145
Australia

Chris (Hristos) Doucouliagos

Deakin University - School of Accounting, Economics and Finance ( email )

Burwood, Victoria 3215
Australia

Michael Graham

Stockholm University - School of Business ( email )

Roslagsvägen 1010
Stockholm, SE-106 91
Sweden
+ 46 8 674 7451 (Phone)

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