CEO and Director Compensation, CEO Turnover and Institutional Investors: Is There Cronyism in the UK?

63 Pages Posted: 28 May 2019

See all articles by Jie Chen

Jie Chen

Leeds University Business School, University of Leeds

Marc Goergen

IE Business School, IE University; European Corporate Governance Institute (ECGI)

Woon Sau Leung

The University of Edinburgh Business School, The University of Edinburgh

Wei Song

Swansea University - School of Management

Date Written: February 1, 2019

Abstract

This paper provides new evidence that correlated abnormal compensation of CEOs and directors is symptomatic of agency problems associated with cronyism. We find that director abnormal compensation has a negative impact on the likelihood of CEO turnover and reduces the sensitivity of CEO turnover to poor stock performance. However, for firms with greater institutional ownership the adverse effects of director abnormal compensation are mitigated, and the negative impact of abnormal compensation on firm performance is reduced. These findings suggest that correlated abnormal compensation of CEOs and directors is likely associated with agency problems.

Keywords: agency problems; director compensation; CEO turnover; institutional investors; board effectiveness

JEL Classification: G20, G34

Suggested Citation

Chen, Jie and Goergen, Marc and Leung, Woon Sau and Song, Wei, CEO and Director Compensation, CEO Turnover and Institutional Investors: Is There Cronyism in the UK? (February 1, 2019). Journal of Banking and Finance, Vol. 103, No. 18-35, 2019. Available at SSRN: https://ssrn.com/abstract=3381168

Jie Chen (Contact Author)

Leeds University Business School, University of Leeds ( email )

Leeds LS2 9JT
United Kingdom

HOME PAGE: http://https://business.leeds.ac.uk/about-us/our-people/staff-directory/profile/jie-chen-1/

Marc Goergen

IE Business School, IE University ( email )

Finance Department
Maria de Molina, 12
Madrid, 28006
Spain

HOME PAGE: http://www.ie.edu/business-school/faculty-and-research/faculty/marc-goergen/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Woon Sau Leung

The University of Edinburgh Business School, The University of Edinburgh ( email )

29 Buccleuch Pl
Edinburgh, Scotland EH8 9JS
United Kingdom

Wei Song

Swansea University - School of Management ( email )

Singleton Park
Swansea, Wales SA2 8PP
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
36
Abstract Views
245
PlumX Metrics