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

Choe, Chongwoo and Tian, Gloria and Yin, Xiangkang (2009): Managerial Power, Stock-Based Compensation, and Firm Performance: Theory and Evidence.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Managerial power, agency theory, stock-based compensation, firm performance, pay-performance sensitivity
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J33 - Compensation Packages ; Payment Methods

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