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Director tenure and the compensation of bank CEOs

Author

Listed:
  • John Byrd
  • Elizabeth S. Cooperman
  • Glenn A. Wolfe

Abstract

Purpose - The purpose of this paper is to examine how board tenure affects the compensation of CEOs using a sample of 93 publicly traded US banks. Design/methodology/approach - The paper proposes a CEO allegiance hypothesis whereby long-term relationships with executives and other directors will shift allegiance from shareholders to executives vs a more traditional expertise hypothesis that predicts superior monitoring of executives by directors with longer tenure. A generalized least squares regression methodology is used to examine the relationship between CEO compensation and outside director tenure. Findings - For the full sample, board tenure variables were found to be insignificant. However, when examining a subsample of firms with CEO tenure of greater than six years or more, the relationship between CEO pay and the median tenure of outside directors becomes positive, supporting a CEO allegiance hypothesis. Research limitations/implications - On a caveat, since this study relies on data for large bank holding companies over a short period of time, further research is needed to determine if the results carry over to a broader sample of firms and across time. Practical implications - The results suggest that the independence of outside directors may be compromised when they serve for longer tenure periods together with the same CEO; an important consideration for better corporate governance. Originality/value - The study provides a unique examination of outside director independence from the perspective of board tenure and the long-term relationships with executives and other directors that may result in allegiance shifts away from shareholders and towards managers.

Suggested Citation

  • John Byrd & Elizabeth S. Cooperman & Glenn A. Wolfe, 2010. "Director tenure and the compensation of bank CEOs," Managerial Finance, Emerald Group Publishing, vol. 36(2), pages 86-102, January.
  • Handle: RePEc:eme:mfipps:v:36:y:2010:i:2:p:86-102
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    References listed on IDEAS

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    1. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, January.
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    Citations

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    Cited by:

    1. Elizabeth W. Cooper, 2011. "Determinants of off-balance sheet usage in private banks," Studies in Economics and Finance, Emerald Group Publishing, vol. 28(4), pages 248-259, October.
    2. Flora Niu & Greg Berberich, 2015. "Director tenure and busyness and corporate governance," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 6(1), pages 56-69.
    3. repec:eee:reveco:v:50:y:2017:i:c:p:175-195 is not listed on IDEAS
    4. Muhammad Fayyaz Sheikh & Syed Zulfiqar Ali Shah, 2016. "Executive Compensation, Firm Performance And Corporate Governance In An Emerging Economy," Proceedings of Business and Management Conferences 4406477, International Institute of Social and Economic Sciences.

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