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Managerial Power, Stock-Based Compensation, and Firm Performance: Theory and Evidence

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  • Choe, Chongwoo
  • Tian, Gloria
  • Yin, Xiangkang

Abstract

We study theoretically and empirically the relation among CEO power, CEO pay and firm performance. Our theoretical model follows the rent extraction view of CEO compensation put forward by the managerial power theory. We test our theoretical findings using the sample of S&P1500 firms. The predicted relation between power and pay is largely supported. However, the relation between power and firm performance has mixed support, suggesting that, while the managerial power theory has relevance in explaining the relation between power and pay, the scope of power needs to be broadened for better understanding of how managerial power affects firm performance.

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  • Choe, Chongwoo & Tian, Gloria & Yin, Xiangkang, 2009. "Managerial Power, Stock-Based Compensation, and Firm Performance: Theory and Evidence," MPRA Paper 13449, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13449
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    Cited by:

    1. Dey, Tania & Banerjee, Rajabrata, 2011. "Can Corporate Diversification Promote Firm Value? A Survey," MPRA Paper 28928, University Library of Munich, Germany.
    2. Akram, Farheen & Abrar ul haq, Muhammad, 2018. "Assessing the Effect of Managerial Power on Firm Performance through the Perceptual Lens of Executive Remuneration," MPRA Paper 100050, University Library of Munich, Germany, revised 2019.
    3. Hongfei Tang, 2014. "Are CEO stock option grants optimal? Evidence from family firms and non-family firms around the Sarbanes–Oxley Act," Review of Quantitative Finance and Accounting, Springer, vol. 42(2), pages 251-292, February.
    4. Richard Heaney & Vineet Tawani & John Goodwin, 2010. "Australian CEO Remuneration," Economic Papers, The Economic Society of Australia, vol. 29(2), pages 109-127, June.
    5. Choe Chongwoo & Park In-Uck, 2011. "Information, Authority, and Corporate Hierarchies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-39, February.
    6. Choe, Chongwoo & Tian, Gloria Y. & Yin, Xiangkang, 2014. "CEO power and the structure of CEO pay," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 237-248.

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    More about this item

    Keywords

    Managerial power; agency theory; stock-based compensation; firm performance; pay-performance sensitivity;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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