Diffusion of Corporate Governance from Influential Adopters
63 Pages Posted: 2 Nov 2015 Last revised: 6 Jun 2017
Date Written: June 1, 2016
Based on diffusion theory, I conjecture that governance mechanisms, in particular performance-contingent equity (PCE), exhibit influential adopter diffusion. That is, firms tend to emulate an influential industry peer in adopting PCE in their executive compensation contracts. I find evidence of influential adopter diffusion through robust positive relations between firms’ and influential adopters’ PCE use and design. Additional analyses show that the diffusion relation varies inversely with industry heterogeneity and differences in CEO compensation structure, and is not driven by window-dressing incentives. In sum, my findings shed light on the spread of PCE over time by way of influential adopter diffusion.
Keywords: Corporate governance; Performance-contingent equity; Influential adopter diffusion
JEL Classification: G34; M41; O33
Suggested Citation: Suggested Citation