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The sensitivity of compensation to social capital: Family CEOs vs. nonfamily CEOs in the family business groups

  • Young, Chaur-Shiuh
  • Tsai, Liu-Ching
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    This study examines the role of CEO social capital, defined as external directorship ties held by the CEO, in determining family vs. nonfamily CEOs' compensation in a network-based business society and governance system. Using a sample of pooled data of family firms listed on the Taiwan Stock Exchange (TSE) from 2000 to 2002, the empirical results show that CEO social capital is an important determinant in setting nonfamily CEOs' pay level, consistent with the expectation of the contractual governance model. By contrast, as expected by relational governance model, family CEOs' social capital is not incentive-relevant. This study extends the literature on CEO compensation by documenting that in a market where guanxi and connections are considered valuable business tools, corporations will be willing to compensate professional CEOs for the social capital that they bring to the firm.

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    Article provided by Elsevier in its journal Journal of Business Research.

    Volume (Year): 61 (2008)
    Issue (Month): 4 (April)
    Pages: 363-374

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    Handle: RePEc:eee:jbrese:v:61:y:2008:i:4:p:363-374
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    7. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
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