Geographic and Industrial Corporate Diversification: The Level and Structure of Executive Compensation

Posted: 21 Jan 2002

See all articles by Augustine Duru

Augustine Duru

American University - Kogod School of Business

David M. Reeb

National University of Singapore

Abstract

We explore the relation between corporate diversification and CEO compensation. We document that geographic diversification provides a compensation premium, while industrial diversification is associated with lower levels of CEO pay. We also examine the effect of corporate diversification on the structure and performance criteria of CEO compensation contracts. We find that both diversification strategies are associated with a greater use of incentive-based compensation and with a greater reliance on market-based, rather than accounting-based measures of firm performance. Finally, we address the question of whether shareholders reward CEOs for corporate diversification. We document that while value-enhancing geographic diversification is rewarded, non-value-enhancing industrial diversification is penalized.

Keywords: Geographic diversification; Industrial diversification; Performance measures; Executive compensation

JEL Classification: J33, L20, M41, F23

Suggested Citation

Duru, Augustine and Reeb, David M., Geographic and Industrial Corporate Diversification: The Level and Structure of Executive Compensation. Available at SSRN: https://ssrn.com/abstract=296702

Augustine Duru (Contact Author)

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-1937 (Phone)
202-885-1992 (Fax)

David M. Reeb

National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://www.davidreeb.net

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