Corporate Governance, Performance and CEO Pay

Abstract

Corporate governance continues to be one of the main stories in the last five years as a result of the recent corporate scandals. In this paper, we attempt to investigate the relationship (and causality) between various corporate governance mechanisms, CEO pay and corporate performance. Using data on Canada's largest corporations, we cast a significant doubt on this assumed causality between governance and performance and subsequently performance and CEO pay. Good governance seem to have little, if any relation with firm performance and CEO pay seems to be determined more by size than performance. Based on these results, we wonder if the heavy emphasis placed by various regulatory bodies on governance environment may be misplaced. This increased emphasis may reduce corporate scandals but it may do little to improve corporate performance.

Keywords: Corporate governance, governance ranking, board of directors, CEO pay

JEL Classification: G32, D23