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Court Intervention as a Governance Mechanism over CEO Pay: Evidence from the Citigroup Derivative Lawsuit

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  • Ana M. Albuquerque
  • Mary Ellen Carter
  • Luann J. Lynch

Abstract

We use an unanticipated court ruling in a lawsuit against Citigroup claiming corporate waste related to CEO pay to analyse court intervention as an alternative governance mechanism in cases of excess pay. We find a negative relation between announcement returns and excess pay, consistent with shareholders of these firms perceiving court intervention as net costly. However, we find a positive relation between announcement returns and excess pay accompanied by poor performance, suggesting that intervention is welcome when pay is more egregious. Finally, we find that firms with excess pay and whose shareholders welcome intervention reduce future pay relative to other firms, suggesting that the threat of court intervention is a potential mechanism to control excess pay.

Suggested Citation

  • Ana M. Albuquerque & Mary Ellen Carter & Luann J. Lynch, 2015. "Court Intervention as a Governance Mechanism over CEO Pay: Evidence from the Citigroup Derivative Lawsuit," European Accounting Review, Taylor & Francis Journals, vol. 24(4), pages 637-658, December.
    • Handle: RePEc:taf:euract:v:24:y:2015:i:4:p:637-658
    DOI: 10.1080/09638180.2014.937348
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    Cited by:

    1. Capkun, Vedran & Ors, Evren, 2021. "Replacing key employee retention plans with incentive plans in bankruptcy," Accounting, Organizations and Society, Elsevier, vol. 94(C).

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