Managerial Incentives and Firm Survival

75 Pages Posted: 11 Feb 2019 Last revised: 12 May 2019

See all articles by Gonul Colak

Gonul Colak

Hanken School of Economics

Dimitrios Gounopoulos

University of Bath

Georgios Loukopoulos

University of Bath, School of management

Panagiotis Loukopoulos

University of Strathclyde

Date Written: April 9, 2019

Abstract

We find that IPO firms with generously compensated CEOs and large pay disparities in the boardroom have lower failure rates and longer survival time in the periods following the offering. Economically, an interquartile change in the distribution of CEO pay (pay gap) results, on average, in a reduction of the failure risk probability by 21.81% (20.55%). The relationship between CEO pay and IPO survival is strengthened among firms with lower agency conflicts, while the link between pay gap and IPO survival is pronounced when CEO succession planning is more important. Both measures of managerial pay are associated with lower information asymmetry, better valuation, and superior operating performance in the post-IPO market. The results are robust to alternative interpretations and additional tests.

Keywords: Executive Compensation, Pay Gap, IPO Survival, Initial Public Offerings

JEL Classification: G24, G30, G31, G32, J31, J33, L25

Suggested Citation

Colak, Gonul and Gounopoulos, Dimitrios and Loukopoulos, Georgios and Loukopoulos, Panagiotis, Managerial Incentives and Firm Survival (April 9, 2019). Available at SSRN: https://ssrn.com/abstract=3250415 or http://dx.doi.org/10.2139/ssrn.3250415

Gonul Colak

Hanken School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland

Dimitrios Gounopoulos (Contact Author)

University of Bath ( email )

School of Management,
Wessex House, Claverton Down
Bath, BA2 7AY
United Kingdom

Georgios Loukopoulos

University of Bath, School of management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Panagiotis Loukopoulos

University of Strathclyde ( email )

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom

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