How to strike a balance between CEO compensation and strategic risk? A longitudinal analysis

2018 ◽  
Vol 11 (3) ◽  
pp. 387-417 ◽  
Author(s):  
Bradley Olson ◽  
Satyanarayana Parayitam ◽  
Bradley Skousen ◽  
Christopher Skousen
Keyword(s):  
Risk Taking ◽  
Ceo Compensation ◽  
Stock Option ◽  
Ceo Power ◽  
Content Type ◽  
Publicly Traded Companies ◽  
Strategic Risk ◽  
Ceo Tenure ◽  
Increase Risk ◽  
Longitudinal Regression

Purpose The purpose of this paper is to examine the relationships between CEO ownership, stock option compensation, and risk taking. The authors include important CEO power variables as moderators. Design/methodology/approach The paper uses a longitudinal regression analysis. In addition, the paper includes interactional plots for further interpretation. Findings The results indicate that CEO ownership reduces risk taking, while there is a partial support that stock options increase risk taking. CEO tenure is a powerful moderator that decreases risk taking in both CEO ownership and CEO stock option scenarios. Board independence, counter to the hypothesis in this paper, may encourage risk taking. Research limitations/implications The findings in this paper provide support for the inclusion of CEO power variables in CEO compensation studies. However, the study examines large publicly traded companies; thus, all findings may not be applicable to small- and medium-sized companies. Originality/value Scholars have encouraged more complex CEO compensation models and the authors have examined both main effect and interaction models.

CEO compensation, CEO attributes and tax aggressiveness: evidence from French firms listed on the CAC 40

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sawssan Jbir ◽  
Souhir Neifar ◽  
Yosra Makni Fourati
Keyword(s):  
Ceo Compensation ◽  
Chief Executive ◽  
Least Square ◽  
Annual Reports ◽  
Content Type ◽  
Tax Aggressiveness ◽  
Ceo Tenure ◽  
Negative Effect ◽  
The Impact ◽  
Ceo Attributes

Purpose This paper aims to examine the impact of CEO (chief executive officer) compensation and CEO attributes on the level of tax aggressiveness of French companies. Design/methodology/approach The sample comprises 180 firm-year observations of 40 companies listed on the CAC 40 during the period ranging from 2008 to 2018. For the purpose of overcoming the problems of heteroscedasticity and autocorrelation, the authors apply the generalized least square panel regression. Findings This study’s results corroborate the importance of CEO compensation and CEO attributes as determinants of tax aggressiveness. In addition, the authors come up with the fact that CEO compensation has a negative effect on tax aggressiveness, and that older CEOs and CEOs with accounting expertise are negatively linked with tax aggressiveness. The authors also find out that there is a positive relationship between the CEO tenure and tax aggressiveness. Moreover, the authors report that foreign CEOs are more likely to engage in tax aggressiveness practices than local CEOs. Research limitations/implications The unavailability of all annual reports and the use of only one proxy to measure tax aggressiveness present limitations. This study shows significant implications for shareholders, regulators and researchers. As a matter of fact, shareholders will observe the effect of appointing a foreign CEO on the tax aggressiveness level. This study may also provide regulators with new ideas regarding the role of the CEO and its impact on aggressive decision-making. And it brings forth new insight for researchers through adding a foreign CEO as a new determinant of tax aggressiveness. Originality/value According to the authors’ knowledge, this study is the first to provide empirical evidence regarding the effect of both CEO compensation and CEO attributes on tax aggressiveness. It also looks into the impact of a foreign CEO on tax aggressiveness.

Cashing-in: understanding post-acquisition CEO stock option exercise

2015 ◽  
Vol 53 (9) ◽  
pp. 1953-1975 ◽  
Author(s):  
John S. Marsh ◽  
William J. Wales ◽  
Rachel Graefe-Anderson ◽  
Marshall W. Pattie
Keyword(s):  
Stock Options ◽  
Design Methodology ◽  
Stock Option ◽  
Exercise Behavior ◽  
Future Research ◽  
Acquisition Performance ◽  
Content Type ◽  
Compensation Management ◽  
Ceo Tenure ◽  
Practical Implications

Purpose – The purpose of this study is to explore post-acquisition compensation management and examine how the two most commonly used theories to explain CEO stock option exercise, agency theory and CEO overconfidence, expect CEOs to manage their stock options following an acquisition. Design/methodology/approach – Using logistic regression analysis, the authors investigate whether CEOs are more or less likely to exercise options following an acquisition, and the effect which CEO tenure and acquisition history may have on option exercise. Findings – The results suggest that CEOs are more likely to exercise options following an acquisition. The authors also find that CEO tenure and acquisition experience are both linked to an increase in option exercise. Research limitations/implications – The findings suggest that future research should expect agency effects to outweigh overconfidence effects when considering CEO stock option exercise behavior within the post-acquisition firm context. Practical implications – This paper advises directors and shareholders about whether agency concerns or overconfidence are of greater concern and how CEO tenure and past acquisition history may influence post-acquisition CEO stock option exercise behavior, offering information valuable in designing effective corporate governance. Originality/value – This paper is among the first to explore how CEOs manage their options following an acquisition and finds that CEOs are more likely to exercise stock options following an acquisition. Post-acquisition compensation management is an important, though overlooked, consideration in improving acquisition performance.

The determinants of CEO compensation: new insights from United States

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ahmed Bouteska ◽  
Salma Mefteh-Wali
Keyword(s):  
Firm Performance ◽  
Executive Compensation ◽  
Ceo Compensation ◽  
Future Research ◽  
Ceo Power ◽  
Content Type ◽  
Managerial Power ◽  
The Us ◽  
Ceo Pay ◽  
The Impact

PurposeThe purpose of this paper is to examine the determinants of CEO compensation for sample of the US firms. It emphasizes the presence of executive compensation persistence and the importance of CEO power besides performance while setting CEO pay.Design/methodology/approachThe empirical analysis is conducted on a large sample of US firms during the period 2006–2016. It is based on the generalized method of moments (GMM) models to assess the impact of numerous factors on CEO compensation.FindingsThe main findings reveal that firm performance proxied by accounting-based proxies, as well as market-based proxies, plays a significant role in explaining variations in levels of executive compensation. Moreover, there is a significant persistence in executive compensation among the US sample firms. The authors also document that poor governance conditions (managerial power hypothesis) lead to high compensation levels offered to CEO.Research limitations/implicationsAt the end, without a doubt, the analysis has some limitations that prompt the authors to consider future research directions. One future research avenue that can help better explain the effect of firm performance on the CEO compensation is to study this issue using an international sample to determine whether country-level characteristics (e.g. creditor rights, shareholder rights and the enforcement climate) can influence this relationship. Furthermore, it can be worthwhile to deepen the analysis of CEO power and its impact on CEO compensation. It will be interesting to emphasize how the CEO power interacts with the other governance characteristics and some CEO attributes as CEO gender.Practical implicationsThe paper's findings have implications for practitioners, policymakers and regulatory authorities. First, the findings inform regulators that performance is not the only determinant of CEO pay level. This may warrant increased firm disclosure of the details of the pay structure. Second, the study offers insights to policymakers and members of boards of directors interested in enhancing the design of executive compensation and internal corporate governance, to better align managerial incentives to shareholder interests. Firms should strengthen the board independence and properly constitute the board committees (compensation, risk, nomination…).Originality/valueThis paper presents a comprehensive overview of the CEO compensation determinants. It supplements the classic pay-for-performance sensitivity predictions with insights gained from the dynamics of wage setting theory and managerial power theory. The authors develop a composite index to measure the CEO power in order to test the impact of CEO attributes on CEO pay. Additionally, it verifies whether the determinants of CEO pay depend on firm age and size.

Stock option pay versus restricted stock: A comparative analysis of their impact on managerial risk-taking and performance extremeness

2018 ◽  
Vol 18 (2) ◽  
pp. 301-329 ◽  
Author(s):  
Wanrong Hou ◽  
Steve Lovett ◽  
Abdul Rasheed
Keyword(s):  
Comparative Analysis ◽  
Risk Taking ◽  
Stock Options ◽  
Stock Option ◽  
Large Sample ◽  
Managerial Risk ◽  
Ceo Tenure ◽  
Restricted Stock ◽  
And Performance ◽  
Using Data

This study investigates how two stock-based incentives affect the risk-taking behavior of CEOs. We compare stock options and restricted stock in terms of their impact on the magnitude of investments and performance extremeness. We test our hypotheses using data for 23 years starting from 1993 for a large sample of S&P 1500 firms. Our results indicate that both stock option and restricted stock pay increase the magnitude of investments undertaken by CEOs, but that stock options have a much stronger effect. Also, stock option pay increases the likelihood of both big gains and big losses, but restricted stock reduces the likelihood of big losses. Finally, we find that as CEO tenure increases, the effects of stock-based compensation tend to diminish. Therefore, stock-based incentives appear to be a useful solution to the agency problem for short-tenured CEOs, but much less so for long-tenured CEOs.

Governance and risk-taking in conventional and Islamic banks

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Siew Peng Lee ◽  
Mansor Isa ◽  
Rubi Ahmad ◽  
Obiyathulla Ismath Bacha
Keyword(s):  
Risk Taking ◽  
Independent Directors ◽  
Islamic Banks ◽  
Content Type ◽  
Multiple Directorships ◽  
Increase Risk ◽  
Reduce Risk ◽  
Risk Committee ◽  
Relationship Of ◽  
Conventional And Islamic Banks

PurposeThe purpose of this study is to examine the relationship of the board and risk committee in respect of risk-taking in conventional and Islamic banks in Malaysia.Design/methodology/approachThis study uses unbalanced panel data for 15 conventional and 14 Islamic banks over the period 2007–2016. The generalised least squares random effects technique is applied.FindingsThe evidence shows that independent directors and frequency of board meetings reduce risk-taking but that the number of directors with finance and banking experience and those with multiple directorships tend to increase risk-taking. The findings also indicate that the size of the risk committee, the number of directors on the risk committee and the appointment of a designated risk officer tends to reduce risk-taking in banks. By comparing conventional and Islamic banks, the findings show that Islamic banks have lower exposure to portfolio risk but higher insolvency risk.Practical implicationsThe findings in this study suggest that the board and risk committee have an impact on bank risk-taking. The implications for management include having more independent directors, fewer directors with multiple board memberships and having an efficient risk committee in order to reduce risks. Regulators should look into the issue of multiple directorships as this is positively related to risk-taking. Islamic banks should expand their operations as our findings indicate that bigger banks are better able to manage risk.Originality/valueThis study covers bank governance and risk committee, which are crucial in influencing the risk-taking behaviour of conventional and Islamic banks.

scholarly journals A futility, perversity and jeopardy critique of “risk appetite”

2019 ◽  
Vol 27 (1) ◽  
pp. 51-73 ◽  
Author(s):  
Alasdair Marshall ◽  
Udechukwu Ojiako ◽  
Maxwell Chipulu
Keyword(s):  
Risk Management ◽  
Risk Taking ◽  
Analytical Framework ◽  
Content Type ◽  
Strategic Risk ◽  
Risk Appetite ◽  
Analytical Perspective ◽  
High Level ◽  
Structured Means ◽  
Strategic Risk Management

Purpose Risk appetite is widely accepted as a guiding metaphor for strategic risk management, yet metaphors for complex practice are hard to critique. This paper aims to apply an analytical framework comprising three categories of flaw – futility, perversity and jeopardy – to critically explore the risk appetite metaphor. Taking stock of management literature emphasising the need for metaphor to give ideation to complex management challenges and activities and recognising the need for high-level metaphor within strategic risk management in particular, the authors propose a means to scrutinise the risk appetite metaphor and thereby illustrate its use for further management metaphors. Design/methodology/approach The authors apply a structured analytical perspective designed to scrutinise conceivably any purportedly progressive social measure. The three flaw categories are used to warn that organisational risk appetite specifications can be: futile vis-a-vis their goals, productive of perverse outcomes with respect to these goals and so misleading about the true potential for risk management as to jeopardise superior alternative use of risk management resource. These flaw categories are used to structure a critical review of the risk appetite metaphor, which moves towards identifying its most fundamental flaws. Findings Two closely interrelated antecedents to flaws discussed within the three flaw categories are proposed: first, false confidence in organisational risk assessment and, second, organisational blindness towards contributions of behavioural risk-taking to true organisational risk exposure. A theory of high (over-optimistic, excessive or inappropriate) risk-taking organisations explores flaws within the three flaw categories with reference to these antecedents under organisational-cultural circumstances where the risk appetite metaphor is most needed and yet most problematic. Originality/value The paper is highly original in its representation of risk management as an organisational practice reliant on metaphor and in proposing a structured means to challenge it as a dominant guiding metaphor where it has gained widespread uncritical acceptance. The discussion is also innovative in its representation of high risk-taking organisations as likely to harbour strong managerial motives, aptitudes and capacities for covert and illicit forms of risk-taking which, being subversive and sometimes reactionary towards risk appetite specifications, may cause particularly serious futility, perversity and jeopardy problems. To conclude, the theory and its implications are summarised for practitioner and educational use.

An examination of CEO power with board vigilance as a catalyst for firm growth in South Africa

2019 ◽  
Vol 23 (4) ◽  
pp. 377-395 ◽  
Author(s):  
Navitha Singh Sewpersadh
Keyword(s):  
South Africa ◽  
Least Squares ◽  
Firm Growth ◽  
Generalized Method Of Moments ◽  
Governing Board ◽  
Growth Strategies ◽  
Ceo Power ◽  
Content Type ◽  
Ceo Tenure ◽  
Ceo Attributes

Purpose The recent collapse of the corporate giant Steinhoff in South Africa (SA) has highlighted the risks of a dominant Chief Executive Officer (CEO) and an ineffective governing board. For this reason, the purpose of this paper is to scrutinize the influence of CEO power attributes and independent governing boards on the growth of a Johannesburg stock exchange-listed firm. Design/methodology/approach The purpose of this paper is to answer the research question “Under the monitoring role of the board, what CEO attributes, theoretically and in practice preeminent successful firm growth strategies?” This question was answered by examining 130 companies over six years using the econometric methodology of generalized least squares and ordinary least squares with the specific inclusion of generalized method of moments estimation due to its efficiency in controlling for unobserved heterogeneity, endogeneity, autocorrelation, heteroscedasticity, amongst others. The proxies for CEO power are CEO tenure, turnover and professional skills as well as the explanatory variable of board vigilance. The response variable was firm growth. Findings This study found that CEO tenure is negatively correlated with firm growth indicating that long-tenured CEOs may stagnate the firm's growth. Furthermore, CEO turnover was positively correlated with firm growth indicating that a new CEO may bring innovative strategies that link to this study's finding on CEO tenure. The membership of CEOs to accounting professional bodies and board vigilance are also positively correlated to firm growth. Practical implications SA firms' growth policy does not solely depend on the neoclassical fundamental determinants of profitability, net worth, and cash flows. Since the value relevance of assessing CEO attributes as well as board vigilance in the SA market has proved to be very significant and will contribute to future decision making on growth strategies. This study innovatively illustrates the different drivers of firm growth, which is distinct from the normal macroeconomic indicators. The practical contribution of the study lies in the fact that organizations now discern which CEO attributes contribute to sustainability and profitability. Social implications The current depressed economic environment has several negative implications for the citizens of SA. The rising unemployment levels and inflation has deteriorated living conditions. For the economy to recover, SA needs its listed companies to remain strong performers to protect stakeholder interests and attract investments. The people responsible for steering the companies through this difficult time are the CEOs with the governing board protecting the public interest. This study examines these two important constructs concerning firm growth. Originality/value This study uniquely used a firm growth variable as opposed to the multitude of studies that used firm performance variables. Furthermore, this study's robustness was bolstered by an extensive theoretical framework employed to examine the value of a CEO as a firm growth stimulator. The period of this study is also unique as it examines firms in the aftermath of the global recession of 2008. This study provides a fresh perspective on firm growth indicators and has key implications for policymakers, stakeholders and regulatory establishments.

Tone of earnings announcements in sin industries

2019 ◽  
Vol 27 (2) ◽  
pp. 228-246 ◽  
Author(s):  
Yan Luo ◽  
Linying Zhou
Keyword(s):  
Design Methodology ◽  
Ethical Issues ◽  
Earnings Announcements ◽  
Ceo Power ◽  
Earnings Announcement ◽  
Content Type ◽  
Ceo Tenure ◽  
Social And Ethical Issues ◽  
Industry Membership ◽  
The Impact

Purpose The purpose of this paper is to investigate the empirical association between the tone of earnings announcements and a company’s membership in a sin industry. Design/methodology/approach This study constructs a model of the determinants of earnings announcement tone to examine the impact of sin industry membership on earnings announcement tone. An interaction term between CEO power (CEO–chairman duality) and sin industry membership is used to test whether CEO power moderates the strength of the association. The earnings announcements tone is measured using the spread in the proportion of positive and negative words. The category of sin industry includes not only industries such as tobacco, gambling and alcohol, but also industries associated with emerging environmental, social, and ethical issues (i.e. firearms, oil and cement). Findings The analysis of a sample of US firms from the 1994 to 2013 period shows that the tone of earnings announcement is less optimistic for companies in sin industries, but this association is weaker for companies that are led by powerful CEOs. The results remain robust to alternative definitions of sin industry membership and CEO power (CEO tenure) and to alternative model specifications. Originality/value The findings suggest that although sin companies cannot change the nature of their business, the management of such companies, in general, uses a less aggressive tone in their earnings announcements. These results further investors’ understanding of sin companies’ reporting behavior.

scholarly journals Impact of Managerial Ability and Power on CEOs Compensation

2020 ◽  
Vol 9 (SI) ◽  
pp. 103-120
Author(s):  
Srikanth Potharla
Keyword(s):  
Bargaining Power ◽  
Ceo Compensation ◽  
Ordinary Least Squares ◽  
Least Squares Regression ◽  
Ceo Power ◽  
Managerial Ability ◽  
Rent Extraction ◽  
Ceo Tenure ◽  
The Impact ◽  
Ceo Characteristics

The present study aims to test whether the rent extraction or efficient contracting which significantly influences the compensation of CEOs in Indian companies. By drawing the sample from all the listed companies providing data on CEO characteristics from the year 2006 to 2018, the study tests the empirical model using ordinary least squares regression and quantile regression.  The results of analysis reveal that CEO compensation is tenure-variant and there is a trivial difference between the impact of CEO power and CEO tenure. It is in line with the bargaining theory of managerial ability view on CEO compensation. It supports efficient contracting in CEO compensation. The results of the analysis also reveal that impact of CEO power is comparatively less for long-tenured CEOs. It implies that managerial ability view is maintained and CEO compensation is influenced by their bargaining power. The results also prove that power premium is more in case of group companies compared to non-group companies. Key words: CEO compensation, rent extraction theory, efficient contracting theory, CEO Power, CEO Tenure, Indian companies.

CEO power, corporate risk taking and role of large shareholders

2018 ◽  
Vol 10 (1) ◽  
pp. 55-72 ◽  
Author(s):  
Junaid Haider ◽  
Hong-Xing Fang
Keyword(s):  
Risk Taking ◽  
Generalized Method Of Moments ◽  
Negative Relationship ◽  
Dynamic Panel Data ◽  
Ceo Power ◽  
Total Risk ◽  
Content Type ◽  
Large Shareholders ◽  
Corporate Risk ◽  
The Impact

Purpose This paper aims to investigate whether a powerful chief executive officer (CEO) impacts corporate risk taking in the distinctive institutional and market setting of China? Second, in case such relationship exists, the paper further aims to investigate whether the presence of large shareholders affects it, and finally, whether this effect of large shareholders varies in state-owned enterprises (SOEs) and non-state-owned enterprises (NSOEs). Design/methodology/approach The authors have used a sample of 1,502 Chinese firms listed on Shanghai and Shenzhen stock exchanges. Sample period is 2008-2013. Besides conventional fixed-effect regression, dynamic panel data estimation (generalized method of moments) is applied to address the potential endogeneity. Findings The results show that CEO power is negatively related with corporate risk taking in two risk proxies, i.e. total risk and idiosyncratic risk. Second, the presence of large shareholders significantly affects this relationship, but does not change the primary negative relationship between CEO power and corporate risk taking. Finally, the results show that the relationship between CEO power and corporate risk taking is different in SOEs and NSOEs. The findings of this paper contend the organizational and behavioral theory viewpoint that individual decisions are more extreme. Practical implications This study provides useful implication for policymakers and suggests that while evaluating CEO’s performance, institutional and market settings should be considered. Originality/value This study provides new insights on the impact of CEO power on corporate risk taking under the two distinctive features in a developing country, i.e. presence of large shareholders and state-owned enterprises.

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