Political Contributions and CEO Pay

WFA Conference Paper, 2011

AFA Conference Paper, 2011

66 Pages Posted: 13 Mar 2020

See all articles by Hadiye Aslan

Hadiye Aslan

Georgia State University - Department of Finance

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC) Herzliyah; European Corporate Governance Institute (ECGI)

Date Written: 2011

Abstract

Using campaign contributions to measure CEO's political connections, we find that a one standard deviation increase in political connections is associated with a 9% increase in CEOs' annual compensation and a 17% decrease in his pay-performance sensitivity. Political rents increase with the strength of the CEO's politician and whether he or she is in power. The effects exist after accounting for potential endogeneity, selection bias and broader measures of social networks. Finally, the portion of the compensation explained by political connections is associated with an average increase of 0.3% in firms' operating performance. Our findings suggest large benefits to shareholders from CEOs' political connections at relatively low direct costs.

Keywords: Political Donations, CEO Compensation, Pay-Performance Sensitivity

Suggested Citation

Aslan, Hadiye and Grinstein, Yaniv, Political Contributions and CEO Pay (2011). WFA Conference Paper, 2011, AFA Conference Paper, 2011, Available at SSRN: https://ssrn.com/abstract=3547914 or http://dx.doi.org/10.2139/ssrn.3547914

Hadiye Aslan (Contact Author)

Georgia State University - Department of Finance ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Sage Hall
Ithaca, NY 14853
United States
607-255-8686 (Phone)
607-254-4590 (Fax)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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