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Independent Directors, Executive Remuneration and the Governance of the Corporation: Some Empirical Evidence from the United Kingdom

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  • Johnston, James

Abstract

One aspect of the study of executive remuneration that has received comparatively little attention is its ability to shed light on the governance of the corporation. The level of a Chief Executive Officer’s remuneration will embody information on both the market within which a business operates and the effectiveness of its independent directors as instruments of corporate governance. Differences in the salaries of top directors that cannot be accounted for by differences in business performance may provide useful evidence on the health of a company’s governance mechanisms. This paper contains the results of an empirical investigation into the role of external competition and internal controls in generating the executive salaries that we observe in the United Kingdom’s leading firms. It also considers whether compliance with the corporate structures prescribed by external committees is likely to curtail some of the excesses seen in the past.

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  • Johnston, James, 2007. "Independent Directors, Executive Remuneration and the Governance of the Corporation: Some Empirical Evidence from the United Kingdom," Review of Applied Economics, Review of Applied Economics, vol. 0(Number 1-), pages 1-18.
    • Handle: RePEc:ags:reapec:50160
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    1. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
    2. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
    3. Cosh, Andrew, 1975. "The Remuneration of Chief Executives in the United Kingdom," Economic Journal, Royal Economic Society, vol. 85(337), pages 75-94, March.
    4. Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 375-390, June.
    5. Lucian A. Bebchuk & Jesse M. Fried, 2005. "Pay Without Performance: Overview of the Issues," Journal of Applied Corporate Finance, Morgan Stanley, vol. 17(4), pages 8-23.
    6. Conyon, Martin J & Leech, Dennis, 1994. "Top Pay, Company Performance and Corporate Governance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(3), pages 229-247, August.
    7. Lucian Bebchuk & Yaniv Grinstein, 2005. "Firm Expansion and CEO Pay," NBER Working Papers 11886, National Bureau of Economic Research, Inc.
    8. Leech, Dennis & Leahy, John, 1991. "Ownership Structure, Control Type Classifications and the Performance of Large British Companies," Economic Journal, Royal Economic Society, vol. 101(409), pages 1418-1437, November.
    9. Borokhovich, Kenneth A. & Parrino, Robert & Trapani, Teresa, 1996. "Outside Directors and CEO Selection," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 337-355, September.
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    Financial Economics;

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