CEO Turnover and Firm Performance in China’s Listed Firms (CRI 2009-012)

Manuscript Type: Empirical Research Question/Issue: This study investigates the relation between CEO turnover and firm performance in China’s listed firms. The study examines how the sensitivity of CEO turnover to firm performance is moderated by the private control of firms, the presence of a majority shareholder and the presence of independent directors on the board. Research Findings/Insights: Using a panel of about 1200 Chinese firms per year from 1999 to 2006 we find significant changes in the ownership and control of firms. The private control of firms and the fraction of independent directors on the board have increased considerably over time. The study finds a significant negative association between CEO turnover and firm performance consistent with the agency model. There is evidence that the CEO turnover sensitivity for poor performance is greater in firms that are privately controlled, or have a majority shareholder, or have a greater fraction of independent directors on the board. Theoretical/Academic Implications: This study provides empirical support for the agency model and the importance of internal corporate governance to attenuate agency costs. It provides important insights into firm governance in transition economies. Practitioner/Policy Implications: This study offers insights to policy makers interested in enhancing the design of internal corporate governance within transition economies

The Impact of Training on Productivity and Wages: Evidence from British Panel Data

It is standard in the literature on training to use wages as a sufficient statistic for productivity. But there are many reasons why wages and productivity may diverge. This paper is part of a smaller literature on the effects of work-related training on direct measures of productivity. We construct a panel of British industries between 1983 and 1996 containing training, productivity and wages. Using a variety of econometric estimation techniques (including system GMM) we find that training is associated with significantly higher productivity. Raising the proportion of workers trained in an industry by one percentage point (say from the average of 10% to 11%) is associated with an increase in value added per worker of about 0.6% and an increase in wages of about 0.3%. Furthermore, we find that the magnitude of the impact of training on wages is only half as large as the impact of training on productivity, implying that the existing literature has underestimated the importance of training. We also show evidence using complementary datasets (e.g. from individuals) that is suggestive of externalities of training and imperfect competition.Productivity, training, wages, panel data

The impact of training on productivity and wages: evidence from British panel data

It is standard in the literature on training to use wages as a sufficient statistic for productivity. This paper examines the effects of work-related training on direct measures of productivity. Using a new panel of British industries 1983-1996 and a variety of estimation techniques we find that work-related training is associated with significantly higher productivity. A one percentage point increase in training is associated with an increase in value added per hour of about 0.6% and an increase in hourly wages of about 0.3%. We also show evidence using individual level datasets that is suggestive of training externalities.Productivity, training, wages, panel data

CEO Pay-for-Performance Heterogeneity Using Quantile Regression (CRI 2009-002)

We provide some examples of how quantile regression can be used to investigate heterogeneity in pay–firm size and pay-performance relationships for U.S. CEOs. For example, do conditionally (predicted) high-wage managers have a stronger relationship between pay and performance than conditionally low-wage managers? Our results using data over a decade show, for some standard specifications, there is considerable heterogeneity in the returns to firm performance across the conditional distribution of wages. Quantile regression adds substantially to our understanding of the pay-performance relationship. This heterogeneity is masked when using more standard empirical techniques

Capital Structure and Managerial Compensation: The Effects of Renumeration Seniority

We show that the relative seniority of debt and managerial compensation has important implications on the design of remuneration contracts.Whereas the traditional literature assumes that debt is senior to remuneration, we show that this is frequently not the case according to bankruptcy regulation and as observed in practice.We theoretically show that including risky debt changes the incentive to provide the manager with stronger performance-related incentives ("contract substitution" effect).If managerial compensation has priority over the debt claims, higher leverage produces lower powerincentive schemes (lower bonuses) and a higher base salary.With junior compensation, we expect more emphasis on pay-for-performance incentives.The empirical findings are in line with the regime of remuneration seniority as the base salary is significantly higher and the performance bonus is lower in financially distressed firms. Series: CentER Discussion Paperseniority of claims;remuneration contracts;financial distress;insolvency;leverage

Compensation Consultants and Executive Pay (CRI 2009-010)

This chapter provides a review of the recent literature on compensation consultants and executive pay. Six major pay consulting firms dominate the market. These firms advise client firms about executive pay and frequently supply other services such as actuarial work. There is some evidence that CEO pay is higher in firms that use compensation consultants. However, the hypothesis that CEO pay is higher in firms whose consultants face potential conflicts of interest, such as cross-selling of other services, is not as empirically robust

The Determinants of Executive Compensation in Japan and the UK: Agency Hypothesis or Joint Determination Hypothesis?

Although there are many studies on executive compensation, many of these studies often take for granted the 'Anglo-American style of corporate governance'. This paper seeks to contrast the effect of corporate governance on the directors' incentive, by comparing the UK and Japan. There is a positive and significant relationship between directors' pay and employees' average wage in Japan, suggesting that both directors and employees have a similar incentive system while no such relationship is observed in the UK. These results suggest that the difference in corporate governance affects the director's salary and their incentives.Executive Compensation, Corporate Governance, Company performance, Japan, UK

British Unions in Decline: An Examination of the 1980s Fall in Trade Union Recognition

The authors analyze establishment-level data from the three Workplace Industrial Relations Surveys of 1980, 1984 and 1990 to document and explain the sharp decline in unionization that occurred in Britain over the 1980s. Between 1980 and 1990 the proportion of British establishments which recognised manual or non-manual trade unions for collective bargaining over pay and conditions fell by almost 20 percent (from 0.67 to 0.54). The evidence reported demonstrates the importance of the interaction between the labour market, the product market, employer behaviour and the legislative framework in determining union recognition status in new establishments. The sharp fall in trade union recognition appears to be largely driven by a failure to achieve recognition status in establishments set up in the 1980s. These results, when taken in conjunction with recent changes in the nature of employment in the British labour market, seem to paint a bleak picture for unions and there appears to be no reason why the decline in union activity should not continue into the 1990s.