Do Shareholders Benefit from the Adoption of Incentive Pay For Directors?

33 Pages Posted: 22 Nov 2001

See all articles by Mason S. Gerety

Mason S. Gerety

Northern Arizona University - Department of Finance

Chun Keung (Stan) Hoi

Rochester Institute of Technology (RIT) - Department of Accounting and Finance

Ashok Robin

Rochester Institute of Technology (RIT)

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Abstract

We assess the stock market reaction to proposals of incentive plans for directors in a sample of 289 firms. We note a reaction that is both economically and statistically insignificant. This result suggests that shareholders do not necessarily benefit from the adoption of such plans. Across firms we find that the market reaction depends on whether the CEO is involved in director selection. We find that stock markets react negatively to plans proposed by firms without nomination committees. Our findings highlight the important link between corporate governance and the effectiveness of director incentive plans.

Keywords: Board of Directors, Corporate Governance, Incentive Compensation

JEL Classification: G3, G34

Suggested Citation

Gerety, Mason S. and Hoi, Chun Keung (Stan) and Robin, Ashok, Do Shareholders Benefit from the Adoption of Incentive Pay For Directors?. Available at SSRN: https://ssrn.com/abstract=291054 or http://dx.doi.org/10.2139/ssrn.291054

Mason S. Gerety

Northern Arizona University - Department of Finance ( email )

PO Box 15066
Flagstaff, AZ 86011
United States
602-523-7355 (Phone)
602-523-7331 (Fax)

Chun Keung (Stan) Hoi (Contact Author)

Rochester Institute of Technology (RIT) - Department of Accounting and Finance ( email )

Saunders College of Business
105 Lomb Memorial Drive
Rochester, NY 14623-5608
United States
585-475-2718 (Phone)
585-475-6920 (Fax)

Ashok Robin

Rochester Institute of Technology (RIT) ( email )

College of Business
Rochester, NY 14623
United States
585-475 5211 (Phone)

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