CEO Compensation and Information Technology

CEO compensation has increased dramatically in the last few decades, drawing increasing scrutiny from policy-makers, researchers, and the broader public. We find that IT (information technology) intensity strongly predicts compensation of CEO and other top executives. Our examination of panel data from 2507 publicly traded firms over 15 years controls for other types of capital, number of employees, market capitalization, median worker wages, industry turbulence, firm or industry fixed effects, and other factors. Our interpretation of this finding builds on earlier work which found a correlation between CEO pay and firm size. We hypothesize that IT increases the information available to the top executives for decision-making, magnifies their ability to propagate instructions throughout the firm, and improves the monitoring and enforcement of those instructions. When a CEO’s instructions are implemented with higher fidelity, the fortunes of the firm will more closely mirror her performance. From the perspective of the CEO, this increases “effective size” of the firm that she controls. In turn, in an efficient market, this will increase overall CEO compensation

The Association between Corporate Governance and Executive Compensation of China Information Technology Listed Company

The dissertation is of great significance since China's information technology industry has made contributions to China's overall economic growth. However, unreasonable CEO compensation have always existed and few studies in Chinese literature focus on the information technology industry. In addition, scholars pay more attention to the link between corporate performance and CEO compensation. Therefore, this dissertation intends to evaluate the impact of corporate governance on executive compensation in information technology. Researchers and special interest groups have conflicting conclusions on the correlation between corporate governance and CEO compensation. In order to study this relationship, this dissertation studies 831 data from 422 listed companies in the information technology industry in China from 2017 to 2018, and uses analytical tools Excel and stata to analyze and combined the empirical results with China’s national conditions. The results find that the independence of the board, the compensation committee, and the board size have no affect on executive compensation, and CEO duality and board age are positively correlated with CEO compensation. Although some findings contradict the hypothesis, they provide a valuable insight on the link between executive remuneration and corporate governance in China's information technology industry

Information Frictions, Monitoring Costs and the Market for CEOs

abstract: This paper discusses the matching between CEOs of different talent and firms of different size, by considering boards' costly monitoring of CEOs who have private information about firm output. By incorporating a costly state verification model into a matching model, we have a number of novel findings. First, positive assortative matching (PAM) breaks down as larger firms match with less talented CEOs when monitoring is sufficiently costly despite of complementarity in firms' production technology. More importantly, PAM can be the equilibrium sorting pattern for large firms and high talent CEOs even it fails for small firms and low talent CEOs, which implies that empirical applications relying on PAM are more robust by using samples of large firms. Second, under positive assortative matching, CEO compensation can be decomposed into frictionless competitive market pay and information rent. More talented CEOs extract more rent, which makes their wage even higher. Third, firm-level corporate governance depends on aggregate market characteristics such as the scarcity and allocation of CEO talent. Weak corporate governance can be optimal when CEO talent is sufficiently scarce. My analysis yields a number of empirical predictions on equilibrium sorting pattern, CEO compensation, and corporate governance.Dissertation/ThesisDoctoral Dissertation Economics 201

Essays On Information Economics

This thesis consists of three essays on information economics.;The first essay is Dynamic Insurance between Two Risk Averse Agents with Bilateral Asymmetric Information. There are two infinitely lived agents in our model, both risk averse, and each has an i.i.d. random endowment stream which is unobservable to the other. Dynamic incentive compatibility in the Nash sense is studied. Feasible and incentive compatible coinsurance contracts are characterized. We give sufficient and necessary conditions for the existence of a constrained efficient contract. We show that a constrained efficient contract can be characterized in a Bellman equation. Algorithms for numerical solution to the Bellman equation are discussed and an example with exponential utility is computed. Our computational results show that, among other things, the wealth position of each agent follows a random walk with reflecting barriers.;The second essay, Adverse Selection in Credit Markets with Costly Screening, is a joint work with Steve Williamson. In this essay, we develop a credit market model with adverse selection where risk-neutral borrowers self select because lenders make use of a costly screening technology. The model has some features which are similar to the Rothschild-Stiglitz adverse selection model. If an equilibrium exists it is a separating equilibrium, and there exist parameter values for which an equilibrium does not exist. Equilibrium contracts are debt contracts, and it is robust to randomization, in contrast to results for the costly state verification model. This framework can be extended to permit financial intermediary structures, and it potentially has many applications.;The third essay, Incentives, CEO Compensation, and Shareholder Wealth in A Dynamic Agency Model, uses a simple dynamic agency model to address a CEO compensation issue raised by Jensen and Murphy (1990). Jensen and Murphy argue that the observed pay-performance sensitivity, though positive, is too low to be consistent with formal agency theory. Two observations are made from computational results. First, in levels, CEO compensation and shareholder wealth are nonpositively correlated. Second, the first differences in CEO compensation and shareholder wealth can be positively or negatively correlated, depending on the degree of risk-sharing achieved with the optimal contract. Furthermore, for a wide variety of plausible parameter values, our model is capable of generating data where the pay-performance sensitivity can be significantly positive but very small, as in Jensen and Murphy\u27s data. We therefore conclude that Jensen and Murphy\u27s empirical finding is consistent with dynamic agency theory

Managerial Ability and Compensation Design

학위논문 (석사)-- 서울대학교 대학원 : 경영학과 회계학 전공, 2013. 2. 황인이.This research views the contingent terms in compensation as a tool for the compensation committee to capture the unknown managerial ability while it continues to serve as an incentive mechanism. As a specific mechanism that sorts manages by their ability to help shareholders retain and attract CEO human capital, Lazear (2004) analyzes the role of contingent terms in compensation when managers are more informed about their productivity. Dutta (2008) suggests that the sensitivity of compensation to performance increases with the managerial ability particularly when information risk is higher. Following Lazear (2004) and Dutta (2008), I empirically investigate the association between the managerial ability and pay sensitivity. Using measure of managerial ability developed by Demerjian et al. (2012) and a sample from ExecuComp, I find that sensitivity of total flow compensation to stock return is increasing with CEO ability. I also find that this positive relationship between the CEO ability and the sensitivity is more salient when CEO is relatively younger, when book-to-market ratio is higher, when a firm has R&D spending, and when a firm is not included in S&P 500 index. I interpret that those four contexts reflect greater information asymmetry about the managerial ability and hence firms encounter greater needs of figuring out the managers ability correctly. In additional tests, I examine the potential effects of industry and time period on my main findings. I find that high technology firms make intensive use of the ability-sorting mechanism via incentive contracts, and that the results are stronger in recent periods suggesting that firms and shareholders attention on managerial ability is growing in relation to the compensation strategy.1. Introduction 3 2. Hypotheses Development 7 3. Data and Methodology 14 4. Empirical Results 20 5. Additional Tests 29 6. Conclusion 34 References 36 Tables 41Maste

Industry Comparison of Executive Compensation and Equity Considerations

This Senior Honors Thesis is brought to you for free and open access by the Undergraduate Student Research at University of New Hampshire Scholars&apos

Strategic Compensation: Does Business Strategy Influence Compensation in High-Technology Firms?

This study examined whether a firm\u27s business strategy influences the firm\u27s compensation systems in high-technology firms. For the firm strategy variable, we used innovation strategy, which is one of the most critical business strategies in the high-technology industry. Our analysis showed that a firm\u27s emphasis on innovation is positively related to the firm\u27s employee pay level, both short-term pay and long-term pay. Moreover, a firm\u27s emphasis on innovation has significant influence on several other aspects of employee compensation management. Innovation is positively associated with the difference in pay level between R&D employees and other employees, time orientation of employee compensation (the relative emphasis on long-term pay to short-term pay), and the length of the stock option vesting period. The influence of innovation is significant after controlling for industry membership

The masquerade ball of the CEOs and the mask of excessive risk

We analyze the effects of CEOs' layoff risk on their risk choice while overseeing a firm. A CEO, whose managerial ability is unknown, is fired if her expected ability is below average. Her risk choice changes the informativeness of output and market's belief about her ability. She can decrease her layoff risk by taking excessive risk and trade off current compensation for layoff risk. The firm may voluntarily or involuntarily allow excessive risk taking even under optimal linear compensation contracts. Above-average CEOs always keep their jobs, but among below-average CEOs, a higher-ability one is more likely to be fired

What drives executive stock option backdating?

We study motives for executive stock option backdating, the practice of changing the grant dates of current options to dates in the past using hindsight. We find that smaller, younger, and less profitable firms tend to be heavier involved in backdating. These results are consistent with the retention hypothesis. In line with the incentive hypothesis, we find that backdating occurs more for options that are out-of-the-money. We derive some evidence for the agency hypothesis, in the sense that backdating companies have a larger percentage of inside directors. However, contrary to this hypothesis, we conclude that backdating firms have better protection for minority shareholders compared to firms that do not backdate

Do Golden Parachutes increase CEO’s DESIRE to be taken over? empirical evidence from australia and united states

This study investigates whether the large payouts that are available to Chief Executive Officers (CEOs) from a change in corporate control (takeover) do motivate some CEOs to seek acquisition of their firms by making them more attractive to a takeover bid. Using Australian and the US data, employing OLS regression, we report that there is a significant relationship between a CEOs change in control payments and their firm’s net cash levels (one of the key factors of takeover attractiveness). Our empirical results also indicate that CEOs desire their firms to be acquired by decreasing shareholders’ equity, thus supporting the view that change in control payments exist primarily for incumbent managers. Our findings provide support to the proposition that managers enjoy having large cash balances to be available to them as it allows them with greater opportunities to derive personal benefit from it. Therefore, our findings suggest that managers prefer to have large cash balances available to them to ensure their future wellbeing by setting up favourable terms in the control agreements