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Does the CEO's Payment Increase Shareholder Return in S&P 500 Companies?

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  • Collins C Ngwakwe

    (University of Limpopo, Polokwane, South Africa)

Abstract

CEO compensation remains at the forefront of corporate financial discourse - primarily because of its interconnection with firm performance, growth and survivability. Diverse literature exists on CEO compensation and shareholder return, albeit with different findings and/or disagreements. This paper aims to apply a single independent variable enquiry - the CEO total payment to understand how it might influence shareholder return. Research employs a quantitative approach by using a simple OLS technique with data drawn from a random sample of fifty-six companies listed in the S&P 500 Index. The S&P 500 is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. The OLS result yields a P-value of 0.0001, with a negative regression coefficient, which thus indicates a significant negative relationship between the CEO total payment and shareholder return. The result corroborates some extant research regarding the inability of agency theory to provide an overriding explanation for the CEO pay and return relationship. Further research is therefore encouraged to apply more variables, particularly those that may capture CEO's opportunistic behaviour in future CEO and stock return analysis.

Suggested Citation

  • Collins C Ngwakwe, 2022. "Does the CEO's Payment Increase Shareholder Return in S&P 500 Companies?," Oblik i finansi, Institute of Accounting and Finance, issue 4, pages 32-36, December.
    • Handle: RePEc:iaf:journl:y:2022:i:4:p:32-36
    DOI: 10.33146/2307-9878-2022-4(98)-32-36
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    References listed on IDEAS

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    1. Bebchuk, Lucian A. & Fried, Jesse M., 2003. "Executive Compensation as an Agency Problem," Berkeley Olin Program in Law & Economics, Working Paper Series qt81q3136r, Berkeley Olin Program in Law & Economics.
    2. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer.
    3. Harry A. Newman & Haim A. Mozes, 1999. "Does the Composition of the Compensation Committee Influence CEO Compensation Practices?," Financial Management, Financial Management Association, vol. 28(3), Fall.
    4. Nader Elsayed & Hany Elbardan, 2018. "Investigating the associations between executive compensation and firm performance," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 19(2), pages 245-270, May.
    5. Mehran, Hamid, 1995. "Executive compensation structure, ownership, and firm performance," Journal of Financial Economics, Elsevier, vol. 38(2), pages 163-184, June.
    6. Martin Bugeja & Zoltan Matolcsy & Helen Spiropoulos, 2016. "The Association Between Gender-Diverse Compensation Committees and CEO Compensation," Journal of Business Ethics, Springer, vol. 139(2), pages 375-390, December.
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    Keywords

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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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