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Shareholder Rights, Boards, and CEO Compensation

  • Rüdiger Fahlenbrach

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.

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File URL: http://hdl.handle.net/10.1093/rof/rfn011
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Article provided by European Finance Association in its journal Review of Finance.

Volume (Year): 13 (2009)
Issue (Month): 1 ()
Pages: 81-113

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Handle: RePEc:oup:revfin:v:13:y:2009:i:1:p:81-113
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