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The Effect of Corporate Governance on CEO Luck: Evidence from the Institutional Shareholder Services (ISS)

12 Pages Posted: 10 Jun 2013  

Pandej Chintrakarn

Mahidol University International College (MUIC)

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Jang-Chul Kim

Northern Kentucky University - Haile/US Bank College of Business

Date Written: June 8, 2013

Abstract

CEOs are “lucky” when they receive stock option grants on days when the stock price is the lowest in the month of the grant, implying opportunistic timing. Extending the work of Bebchuk, Grinstein, Peyer (2010), we explore the effect of overall corporate governance quality on CEO luck. Provided by the Institutional Shareholder Services (ISS), our comprehensive governance metrics are much broader than those used in prior studies, encompassing more diverse aspects of corporate governance, such as audit, state laws, boards, ownership, and director education. We show that an improvement in governance quality by one standard deviation diminishes CEO luck by 14.77-21.06%. The governance standards recommended by ISS appear to be effective in deterring the opportunistic timing of option grants.

Keywords: corporate governance, option backdating, lucky CEOs, institutional shareholder services, agency theory, agency conflict

JEL Classification: G30, G34

Suggested Citation

Chintrakarn, Pandej and Jiraporn, Pornsit and Kim, Jang-Chul, The Effect of Corporate Governance on CEO Luck: Evidence from the Institutional Shareholder Services (ISS) (June 8, 2013). Available at SSRN: https://ssrn.com/abstract=2276585 or http://dx.doi.org/10.2139/ssrn.2276585

Pandej Chintrakarn

Mahidol University International College (MUIC) ( email )

999 Buddhamonthon 4 Road
Salaya, Nakhonpathom, 73170
Thailand
66 (0) 2441 5090 (Phone)
66 (0) 2441 9745 (Fax)

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Jang-Chul Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Accounting, Finance, and Business Law
Highland Heights, KY 41099
United States
859-572-1486 (Phone)

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