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The determinants of board compensation in SOEs: An application to Italian public utilities

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Author Info

  • Fabrizio Erbetta

    ()
    (Department of Business Management and Environment, University of Eastern Piedmont)

  • Giovanni Fraquelli

    ()
    (Department of Business Management and Environment, University of Eastern Piedmont)

  • Anna menozzi

    ()
    (Department of Business Management and Environment,, University of Eastern Piedmont)

  • Davide Vannoni

    ()
    (Department of Economics and Public Finance "G. Prato", University of Torino)

Abstract

This paper investigates the determinants of board compensation for a sample of Italian State Owned Enterprises (SOEs). To that purpose, we use a newly collected panel data of 106 local public utilities observed for the years 1994-2004, which includes detailed information on the boards of directors. During this period, the deregulation process inspired institutional interventions that forced utilities, traditionally owned by local municipalities, to change their juridical form and ownership structure, thereby facilitating the entrance of private investors. The corporate governance literature shows that such changes may exacerbate the agency conflicts between shareholders, top executives and the board. However, board compensation could reduce the agency costs by aligning the incentives of managers with the interests of shareholders. This paper addresses this issue by investigating the impact that board composition, firm characteristics and performance have on board compensation. We find that the average board pay is negatively related to board size and positively related to firm dimension. The public or private nature of the major shareholder does not influence board compensation but the juridical form does. Finally, while the proportion of politically connected directors is found to negatively influence the level of per capita compensation, the impact of firm performance is uncertain.

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File URL: http://web.econ.unito.it/prato/papers/n24.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Former Department of Economics and Public Finance "G. Prato", University of Torino in its series Working papers with number 24.

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Length: 21 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:tur:wpaper:24

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Keywords: board compensation; board composition; politicians; local public utilities;

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  1. Anna Menozzi & María Gutierrez Urtiaga & Davide Vannoni, 2010. "Board Composition, Political Connections and Performance in State-Owned Enterprises," Carlo Alberto Notebooks 185, Collegio Carlo Alberto.
  2. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  3. Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," NBER Working Papers 12365, National Bureau of Economic Research, Inc.
  4. Zhilan Feng & Chinmoy Ghosh & C. Sirmans, 2007. "Director Compensation and CEO Bargaining Power in REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 225-251, October.
  5. Cambini Carlo & Filippini Massimo & Piacenza Massimiliano & Vannoni Davide, 2011. "Corporatization and Firm Performance: Evidence from Publicly-Provided Local Utilities," Review of Law & Economics, De Gruyter, vol. 7(1), pages 191-213, July.
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