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An Analysis of Executive Compensation in Small Businesses

Author

Listed:
  • Kathleen A. Farrell

    (University of New England)

  • Drew B. Winters

    (Texas Tech University)

Abstract

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.

Suggested Citation

  • Kathleen A. Farrell & Drew B. Winters, 2008. "An Analysis of Executive Compensation in Small Businesses," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 12(3), pages 1-21, Summer.
  • Handle: RePEc:pep:journl:v:12:y:2008:i:3:p:1-21
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    Citations

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    Cited by:

    1. Rebel A. Cole & Hamid Mehran, 2016. "What do we know about executive compensation at small privately held firms?," Small Business Economics, Springer, vol. 46(2), pages 215-237, February.

    More about this item

    Keywords

    Compensation ; Executive Compensation ; Executives;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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