Foreign Experience and CEO Compensation

This paper investigates the relationship between a CEO’s foreign experience and CEO compensation. Our analysis is based on the constituent firms of the UK FTSE 350 index from 1999 to 2015. We find that foreign CEOs and national CEOs with foreign working experience receive significantly higher levels of total compensation compared to similar UK CEOs without such characteristics. The results are robust to the endogenous CEO selection using propensity score matching methods, as well as other modelling approaches. Our results show that pay premiums are attributable to the specialized foreign expertise and foreign networks of CEOs, which stem from foreign experience rather than broader general managerial skills

Network 'small-world-ness': a quantitative method for determining canonical network equivalence

Background: Many technological, biological, social, and information networks fall into the broad class of 'small-world' networks: they have tightly interconnected clusters of nodes, and a shortest mean path length that is similar to a matched random graph (same number of nodes and edges). This semi-quantitative definition leads to a categorical distinction ('small/not-small') rather than a quantitative, continuous grading of networks, and can lead to uncertainty about a network's small-world status. Moreover, systems described by small-world networks are often studied using an equivalent canonical network model-the Watts-Strogatz (WS) model. However, the process of establishing an equivalent WS model is imprecise and there is a pressing need to discover ways in which this equivalence may be quantified. Methodology/Principal Findings: We defined a precise measure of 'small-world-ness' S based on the trade off between high local clustering and short path length. A network is now deemed a 'small-world' if S. 1-an assertion which may be tested statistically. We then examined the behavior of S on a large data-set of real-world systems. We found that all these systems were linked by a linear relationship between their S values and the network size n. Moreover, we show a method for assigning a unique Watts-Strogatz (WS) model to any real-world network, and show analytically that the WS models associated with our sample of networks also show linearity between S and n. Linearity between S and n is not, however, inevitable, and neither is S maximal for an arbitrary network of given size. Linearity may, however, be explained by a common limiting growth process. Conclusions/Significance: We have shown how the notion of a small-world network may be quantified. Several key properties of the metric are described and the use of WS canonical models is placed on a more secure footing

Bank performance and executive pay: tournament or teamwork

We investigate the relationship between the dispersion of executive pay and bank performance/valuation by examining two competing theories, the tournament theory (hierarchical wage structure) and the equity fairness theory (compressed wage structure). The key variable of executive pay dispersion is measured using a hand-collected dataset composed of 63 banks from OECD countries and 29 banks from developing countries. The dataset covers the period 2004 to 2012. By combining and modifying a translog profit function and a pay-dispersion model, we are able to address the potential problems of relying on reduced-form estimation. In our subsample of developed and civil law countries, where bank performance is measured by either Tobin’s Q or by the price-to-book ratio, the overall impact of executive pay dispersion is mostly negative, and we find supporting evidence for the equity fairness theory, except for very high levels of dispersion. There is a non-linear effect, as banks perform best when there is either very low or very high executive pay dispersion. For developing country sample banks, greater executive pay dispersion has a negative impact on bank profit. In our subsample of common law countries, however, we find no evidence of a significant impact of executive pay dispersion on bank performance. We conclude that lower executive pay dispersion, a proxy for teamwork, is mostly effective in enhancing bank performance in a significant section of sample banks, i.e., civil law and developing countries

Executive cash compensation and tax aggressiveness of Chinese firms

We examine the influence of corporate compensation policies on firms’ tax aggressiveness in an emerging market where executive compensation is primarily in cash form. Based on a hand-collected dataset of 958 firm-year observations of Chinese listed firms for the 2006-2012 period, we find that firms paying higher executive cash compensation are associated with lower tax aggressiveness. This relationship also holds for the excess cash compensation measures which control for executive shareholding, firm profitability, size, growth opportunity, and board independence. We further document that mutual funds ownership pressure firms paying higher compensation to reduce their tax aggressiveness, suggesting adverse selection by mutual funds on firms exhibiting risky tax avoidance activities. High leverage offsets the negative link between cash compensation and tax aggressiveness, indicating a complementary effect between debt and tax avoidance, and, hence, suggesting that creditor monitoring is weak. These results are robust to the system-GMM estimation, which simultaneously account for the endogeneity of executive compensation, tax aggressiveness, ownership and control, leverage, and corporate governance. Our findings on Chinese firms have important policy implications for developing countries around the world with concentrated ownership structure, weak institutional environment, widespread corruption, ineffective rule of law, and ongoing significant social and political transformation

Corporate governance and national institutions: A review and emerging research agenda

We present a critique of corporate governance research grounded in agency theory and propose that cross-national comparison of corporate governance should consider how the nature and extent of agency relationships differ across different institutional contexts. Building on prior governance studies grounded in sociology and organizational theory we argue that performance outcomes of boards of directors, ownership concentration, and executive incentives may differ depending on the legal system and institutional characteristics in a specific country. Institutions may also affect the extent of complimentarity/substitution among different firm-level governance practices producing patterned variations in firm-level governance mechanisms. Our discussion suggests that researchers need to develop more holistic, institutionally embedded governance framework to analyze organizational outcomes of various governance practices

international linkages value added trade and firm productivity in latin america and the caribbean

This chapter addresses the following research questions: (i) Are firms characterized by international linkages more productive than other firms? (ii) Are those belonging to industries more involved in GVCs even more productive? To this end, we combine the World Bank Enterprise Survey dataset with the new OECD-WTO TiVA dataset and present three main empirical exercises: (1) an analysis of productivity premia associated with participation in international trade and presence of inward FDI; (2) a Cobb–Douglas output function expanded to firms' international linkages; (3) a further expanded version of the above relationship including the TiVA-based indicators of value added trade and industry participation and position in the global value chain. Our empirical outcomes confirm the presence of a positive causal relationship between participation in international activities and firm performance in the LAC region. Focusing on four big Latin American countries we show that the actual level of involvement into GVCs matters as well

Pay at the Top: A Study of the Sensitivity of Top Director Remuneration to Company Specific Shocks

This article considers the empirical determination of top directors' pay during the 1980s. In a sample of approximately 170 companies between 1985 and 1990 we find that director pay is significantly related to shareholder returns, but the estimated elasticity is small. In line with other research, sales growth is an inaportant predictor o f top pay. The current article is novel in that we study whether limits to managerial discretion and organisational restructuring are important in influencing top pay. Importantly, we find that company sales growth through acquiring other firms and increasing indebtedness significantly raise top directors' remuneration above that which can be achieved by internal or organic growth, Also relative performance evaluation in terms of sales growth, reducing union presence and whether or not the company is a subsidiary are all important influences on top pay. However, yardstick conzparisons appear not to apply to shareholder returns, yet under-performance post-acquisition is not punished in line with under-performance for other reasons. Overall though the after allowing for performance and such changes to the firms' operating environment top directors' remuneration the going rate still rose at a rate of 12 to 16 per cent per year between 1985 and 1990, In real terms this was approximately four times that of the average worker in the same sample of firms