Executive Compensation, Corporate Governance and Corporate Performance: A Simultaneous Equation Approach

Ntim. C.G. (2015). Executive Compensation, Corporate Governance and Corporate Performance: A Simultaneous Equation Approach. Managerial and Decision Economics, Vol. 36, No. 2, pp.67-96.

49 Pages Posted: 3 Oct 2013 Last revised: 11 May 2015

See all articles by Collins G. Ntim

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

Sarah Lindop

Aberystwyth University

Kofi A. Osei

University of Ghana Business School

Dennis A. Thomas

Aberystwyth University

Date Written: May 11, 2015

Abstract

This paper investigates the association between executive compensation and performance. It uniquely utilizes a comprehensive set of corporate governance mechanisms within a three-stage least squares (3SLS) simultaneous equation framework. Results based on estimating a conventional single equation model indicate that the executive pay and performance sensitivity is relatively weak, whereas those based on estimating a 3SLS model generally suggest improved executive pay and performance sensitivity. Our findings highlight the need for future research to control for possible simultaneous interdependencies when estimating the executive pay and performance link. The findings are generally robust across a raft of econometric models that control for different types of endogeneities, executive pay and performance proxies.

Keywords: Executive compensation, Corporate performance, Corporate governance, Simultaneous equation, Generalized method of moments (GMM), Endogeneity

JEL Classification: G32, G34, G38

Suggested Citation

Ntim, Collins G. and Lindop, Sarah and Osei, Kofi A. and Thomas, Dennis A., Executive Compensation, Corporate Governance and Corporate Performance: A Simultaneous Equation Approach (May 11, 2015). Ntim. C.G. (2015). Executive Compensation, Corporate Governance and Corporate Performance: A Simultaneous Equation Approach. Managerial and Decision Economics, Vol. 36, No. 2, pp.67-96.. Available at SSRN: https://ssrn.com/abstract=2330783

Collins G. Ntim (Contact Author)

University of Southampton Business School, UK ( email )

Southampton Business School
Highfield
Southampton, England SO17 IBJ
United Kingdom
+44 (0) 238059 4285 (Phone)
+44 (0) 238059 3844 (Fax)

HOME PAGE: http://www.southampton.ac.uk/business-school/about/staff/cgn1n11.page

University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

Sarah Lindop

Aberystwyth University ( email )

Aberystwyth, SY23 3DD
United Kingdom

Kofi A. Osei

University of Ghana Business School ( email )

P.O. Box LG 78
Legon
Accra, Greater Accra LG 78
Ghana

Dennis A. Thomas

Aberystwyth University ( email )

Aberystwyth, SY23 3DD
United Kingdom

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