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Executive Compensation and Corporate Performance in Electric and Gas Utilities

Author

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  • Anup Agrawal
  • Anil K. Makhija
  • Gershon Mandelker

Abstract

We study how the composition of the board of directors and incentives from direct shareholdings affect firm performance in a sample of large, publicly traded firms. We use an instrumental variables approach that controls directly for endogeneity of both shareholdings and board composition. We find no evidence that cross-sectional patterns in board composition are correlated with cross-sectional patterns in performance. This result is consistent with a number of different explanations, all of which suggest that potential regulation of board composition would not be beneficial. Similar to the previous literature, we find a nonmonotonic relation between ownership and performance. Our results suggest that this relation is not a product of the endogeneity of shareholdings. Finally, we find that firm performance suffers if the CEO stays on too long (beyond 15 years).

Suggested Citation

  • Anup Agrawal & Anil K. Makhija & Gershon Mandelker, 1991. "Executive Compensation and Corporate Performance in Electric and Gas Utilities," Financial Management, Financial Management Association, vol. 20(4), Winter.
    • Handle: RePEc:fma:fmanag:agrawal91
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    Cited by:

    1. Manika Kohli, 2017. "How Responsive Executive Compensation is to Corporate Performance? An Indian Perspective," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 8(2), pages 07-18, May.
    2. Paul Joskow & Nancy Rose & Andrea Shepard, 1993. "Regulatory Constraints on CEO Compensation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1 Microec), pages 1-72.
    3. Marc C. Chopin & Ross N. Dickens & Roger M. Shelor, 1995. "An Empirical Examination of Compensation of REIT Managers," Journal of Real Estate Research, American Real Estate Society, vol. 10(3), pages 263-278.
    4. Yacine Belghitar & Ephraim A. Clark, 2012. "The Effect of CEO Risk Appetite on Firm Volatility: An Empirical Analysis of Financial Firms☆," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 19(2), pages 195-211, July.
    5. Barreda-Tarrazona, Iván & Georgantzís, Nikolaos & Manasakis, Constantine & Mitrokostas, Evangelos & Petrakis, Emmanuel, 2016. "Endogenous managerial compensation contracts in experimental quantity-setting duopolies," Economic Modelling, Elsevier, vol. 54(C), pages 205-217.
    6. Joskow, Paul L. & Rose, Nancy L. & Shepard, Andrea., 1993. "Regulatory constraints on executive compensation," Working papers 3550-93., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    7. Chen, Carl R. & Steiner, Thomas L. & Whyte, Ann Marie, 2006. "Does stock option-based executive compensation induce risk-taking? An analysis of the banking industry," Journal of Banking & Finance, Elsevier, vol. 30(3), pages 915-945, March.
    8. Agrawal, Anup & Knoeber, Charles R., 1998. "Managerial compensation and the threat of takeover," Journal of Financial Economics, Elsevier, vol. 47(2), pages 219-239, February.
    9. Iván Barreda-Tarrazona & Nikolaos Georgantzís & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2012. "Managerial compensation contracts in quantity-setting duopoly," Working Papers 2012/17, Economics Department, Universitat Jaume I, Castellón (Spain).
    10. Scott W. Barnhart & Michael F. Spivey & John C. Alexander, 2000. "Do firm and state antitakeover provisions affect how well CEOs earn their pay?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 21(8), pages 315-328.
    11. John L. Teall, 1992. "Merger Activity And Managerial Compensation," Review of Financial Economics, John Wiley & Sons, vol. 2(1), pages 55-67, September.
    12. Engesaeth, E.J.P., 2011. "Managerial compensation contracting," Other publications TiSEM 5eb8d152-e701-4e5c-8852-7, Tilburg University, School of Economics and Management.
    13. Athar, Iqbal & Khan, Muhammad Irfan & Ali, Saffar, 2012. "CEO Compensation and Bank Performance," MPRA Paper 42402, University Library of Munich, Germany, revised 02 Sep 2012.

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