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Shareholder Rights, Boards, and CEO Compensation

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  • Rüdiger Fahlenbrach

Abstract

I analyze the role of executive compensation in corporate governance. As proxies for corporate governance, I use board size, board independence, CEO-chair duality, institutional ownership concentration, CEO tenure, and an index of shareholder rights. The results from a broad cross-section of large U.S. public firms are inconsistent with recent claims that entrenched managers design their own compensation contracts. The interactions of the corporate governance mechanisms with total pay-for-performance and excess compensation can be explained by governance substitution. If a firm has generally weaker governance, the compensation contract helps better align the interests of shareholders and the CEO. Copyright 2009, Oxford University Press.

Suggested Citation

  • Rüdiger Fahlenbrach, 2009. "Shareholder Rights, Boards, and CEO Compensation," Review of Finance, European Finance Association, vol. 13(1), pages 81-113.
    • Handle: RePEc:oup:revfin:v:13:y:2009:i:1:p:81-113
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    File URL: http://hdl.handle.net/10.1093/rof/rfn011
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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