An Analysis of Executive Compensation in Small Businesses
Using a broad-based sample of small businesses, we analyze the relation between accounting-based firm performance measures and executive compensation for S-corporations, and C-corporations. After controlling for the potential endogeneity associated with the choice of organizational form, we find a positive relation between executive pay and ROA in S-corporations and C-corporations. We also find a positive relation between executive pay and total asset turnover but the relation is stronger for S-corporations. We document a positive relation between executive salaries and more diffuse ownership, owner managers, and when the founder is the current owner. We find a negative relation between executive salaries and firms with greater than fifty percent family ownership.
Volume (Year): 12 (2008)
Issue (Month): 3 (Summer)
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