CEO and Director Compensation, CEO Turnover and Institutional Investors: Is There Cronyism in the UK?
63 Pages Posted: 28 May 2019
Date Written: February 1, 2019
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: Suggested Citation