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Dynamics of Managerial Power and CEO Compensation in the Course of Corporate Distress: Evidence from 1992 to 2019

Author

Listed:
  • Sheng Guo

    (Department of Economics, Florida International University)

  • Qiang Kang

    (Department of Finance, Florida International University)

  • Oscar A. Mitnik

    (Inter-American Development Bank)

Abstract

We study the dynamics of two governance constructs, managerial influence over the board of directors and chief executive officer (CEO) compensation, in firms undergoing distress during 1992-2019. Data show a clear trend that governance improves over time, which confounds the inference about the effects of distress on governance. Controlling for the secular changes with a bias-corrected matching estimator, we find that distressed firms reduce managerial board appointments and CEO pay, intensify managerial incentive alignment, and increase CEO turnover. The bulk of CEO compensation changes in distressed firms derives from the performance-related part of compensation, consistent with the "shareholder value" view of CEO compensation.

Suggested Citation

  • Sheng Guo & Qiang Kang & Oscar A. Mitnik, 2021. "Dynamics of Managerial Power and CEO Compensation in the Course of Corporate Distress: Evidence from 1992 to 2019," Working Papers 2123, Florida International University, Department of Economics.
    • Handle: RePEc:fiu:wpaper:2123
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate distress; Managerial influence; CEO compensation; CEO turnover; Bias-corrected matching estimator;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General

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