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Corporate Culture and the Tournament Hypothesis

Author

Listed:
  • Neslihan Ozkan

    (University of Bristol)

  • Oleksandr Talavera

    () (School of Economics, University of East Anglia)

  • Anna Zalewska

    (University of Bath)

Abstract

The empirical literature on the effect of dispersion of executive remuneration (i.e., the intensity of a tournament structure) on the comparative performance of companies is mixed. Studies on US data tend to find strong positive effects but non-US studies tend to fail to find an effect. This suggests that tournaments are likely to be more effective in some situations than others. Using UK data we are able to exploit differences between companies as they become more ‘Americanised’ to provide some insight into this question. In the UK there has been a change towards the use of the US terminology CEO and away from the more tradition UK nomenclature of MD. A minority of UK companies retain the terminology MD. Also in some UK companies the top executive is a US citizen. Both these may tell us something about the culture of the company. We test whether tournaments are more likely to be effective if the company calls it top executive CEO and also if there is a US CEO. We find that increasing the dispersion of remuneration is no more effective for companies with CEOs than for MDs. However, we find that the situation is different when we look at companies with US CEOs relative to the rest of the sample. Here we find that increasing the dispersion is associated with better company performance.

Suggested Citation

  • Neslihan Ozkan & Oleksandr Talavera & Anna Zalewska, 2010. "Corporate Culture and the Tournament Hypothesis," University of East Anglia Applied and Financial Economics Working Paper Series 017, School of Economics, University of East Anglia, Norwich, UK..
  • Handle: RePEc:uea:aepppr:2010_17
    as

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    File URL: https://archive.uea.ac.uk/menu/depts/eco/research/RePEc/uea/papers_pdf/UEA-AFE-017.pdf
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    References listed on IDEAS

    as
    1. Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-280, April.
    2. Kin Lee & Baruch Lev & Gillian Yeo, 2008. "Executive pay dispersion, corporate governance, and firm performance," Review of Quantitative Finance and Accounting, Springer, vol. 30(3), pages 315-338, April.
    3. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
    4. Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1993. "Top Executive Pay: Tournament or Teamwork?," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 606-628, October.
    5. Barron, John M. & Waddell, Glen R., 2003. "Executive rank, pay and project selection," Journal of Financial Economics, Elsevier, vol. 67(2), pages 305-349, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Executive compensation; incentive pay; firm performance;

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L29 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Other

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