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Firms’ Environmental Uncertainty and Excessive CEO Pay

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  • Grace J. Y. Johnson
  • Li Sun
  • Joseph H. Zhang

Abstract

We investigate the relationship between environmental uncertainty and the power of Chief Executive Officer (CEO) at the firm level. We use the coefficient of variation of sales to measure environmental uncertainty (Ghosh and Olsen, 2009) and CEO excess pay as a proxy for CEO power (Bebchuk et al., 2011). Our multivariate regression analyses reveal a significant and negative relationship between environmental uncertainty and the excessive CEO pay, suggesting that CEO power decreases in the presence of a volatile operational environment. We perform various additional tests and obtain consistent results. In summary, our findings imply that uncertain corporate operational environments mitigate the power of CEOs.

Suggested Citation

  • Grace J. Y. Johnson & Li Sun & Joseph H. Zhang, 2015. "Firms’ Environmental Uncertainty and Excessive CEO Pay," Accounting and Finance Research, Sciedu Press, vol. 4(4), pages 115-115, November.
    • Handle: RePEc:jfr:afr111:v:4:y:2015:i:4:p:115
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    References listed on IDEAS

    as
    1. Renée B. Adams & Heitor Almeida & Daniel Ferreira, 2005. "Powerful CEOs and Their Impact on Corporate Performance," Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1403-1432.
    2. Liu, Yixin & Jiraporn, Pornsit, 2010. "The effect of CEO power on bond ratings and yields," Journal of Empirical Finance, Elsevier, vol. 17(4), pages 744-762, September.
    3. Pornsit Jiraporn & Pandej Chintrakarn & Yixin Liu, 2012. "Capital Structure, CEO Dominance, and Corporate Performance," Journal of Financial Services Research, Springer;Western Finance Association, vol. 42(3), pages 139-158, December.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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