Three Essays on Executive Compensation - KOPS - Universität ...

More documents

Recommendations

Info

Profit Sharing with Executives tential endogeneity problems 37 . The first-stage regression of the dividend payout ratio on the set of explanatory variables yields some interesting findings by itself (not reported). The dividend payout ratio is negatively related to capital intensity and sales growth, and positively related to the market-to-book ratio (weakly), firm size and profitability. The findings for capital intensity, firm size and profitability are in line with studies from the literature on cross-sectional differences in dividend payout decisions (e.g. Fama and French (2001) or Bhargava (2010)), whereas the market-to-book ratio as a proxy for investment opportunities is usually found to be negatively related to dividend payments. The second-stage regression with the dividend payout ratio substituted by the residual from the first stage confirms our previous findings. The coefficient estimates of all explanatory variables are very similar (hence unreported) to those reported in Table 3.3. When we use lagged dividend payments and the lagged dividend payout ratio as instruments, the number of observations drops by about one fourth, because of gaps in the unbalanced panel (not all firms are in the panel for five consecutive years) and because we lack 2004 compensation data to calculate the dividend payout ratio based on OCF BC and OCF BB for the year 2004. However, based on the reduced sample we find support for our findings. The coefficient estimates of lagged dividend payments and the lagged dividend payout ratio are significant and of similar magnitude as those without a lag in Table 3.3 (hence unreported). 3.5.4 Managerial Power and the Top Management’s Cash- Flow Share In this subsection we test whether the top management’s cash-flow share is related to managerial power (Hypothesis 4). The argument is that a larger cash-flow share for the top management may be partly explained by greater managerial bargaining power vis-à-vis firm owners, i.e. a more powerful management may be able to capture a larger share of cash. We test Hypothesis 4 with two alternative measures of managerial power. First, we use a measure of managerial entrenchment developed by Bebchuk et al. (2009). This entrenchment index (”E-index”) is based on six equally weighted corporate governance provisions which provide the top management with 37 Dividend payments are highly persistent over time. 137
Profit Sharing with Executives protection from being removed, or the consequences of removal, and thus limit the power of shareholders 38 . These include staggered boards, limits to shareholder bylaw amendments, supermajority requirements for mergers and charter amendments, poison bills, and golden parachutes 39 . The E-index measures the level of managerial entrenchment on a scale from zero to six by counting the number of provisions in place. We merge our data with firm-level data on the E-index which is provided on Bebchuk’s website 40 . Second, we follow Bebchuk et al. (2011) and proxy managerial power by a measure of CEO power. We calculate Bebchuk et al.’s (2011) ”CEO Pay Slice” (CPS) as the fraction of top-five executive cash compensation captured by the CEO. Bebchuk et al. (2011) conclude that a high CPS indicates agency problems and managerial rent extraction, which has a negative impact on performance and firm value. As a robustness check, we also follow Frydman and Saks (2010) and calculate as another measure of CEO power the ratio of CEO cash compensation to the average cash compensation of the other four members in the top management team. We do not report results for this measure because they are very similar to the ones reported for the CPS measure. Table 3.7 shows descriptive statistics for the E-index and the CPS for different industries and years. On average, the E-index is 2.4 over all years and also in every year 2005-2009. There is some variation in average index levels across industries. With 2.9 the E-index is highest for firms in the Chemical, Basic Resources and Automobile sectors. With an average of 1.9, managerial entrenchment measured by this index is lowest in the Media and Telecommunications sectors. The right part of 38 The E-index is based on six out of 24 provisions monitored by the Investor Responsibility Research Center (IRRC). Bebchuk et al. (2009) choose this subset of IRRC provisions based on observed shareholder opposition and activism against them. They use the fact that shareholders focus their opposition on these provisions and not on others to argue that this subset is potentially significant for the shareholders’ view on corporate governance. 39 Bebchuk et al. (2009) discuss these provisions extensively. Very briefly, in firms with staggered boards, shareholders cannot replace a majority of the directors in any given year, because directors are divided into (typically three) separate classes with overlapping terms and with only one class coming up for reelection each year. Limits to bylaw amendments typically come in the form of supermajority requirements making it difficult for shareholders to remove provisions that managers placed in the bylaws. Supermajority requirements for mergers and charter amendments are another set of defense against takeover threats, because they might discourage a hostile buyer from acquiring a control block. Poisson pills effectively preclude a hostile buyer from acquiring shares without the board of directors’ approval. Golden parachutes provide top executives with monetary benefits in case they lose their jobs due to a change in control. 40 http://www.law.harvard.edu/faculty/bebchuk/data.shtml 138
Page 1:
Three Essa
Page 4 and 5:
Contents Vorwort Contents List of T
Page 6:
CONTENTS 3.5.1 Determinants of the
Page 9 and 10:
LIST OF TABLES 2.9 Cash Bonuses and
Page 11 and 12:
Summary Chapter 1, Executive Compen
Page 13 and 14:
Summary top management’s cash-flo
Page 15 and 16:
Zusammenfassung nehmensmerkmale, so
Page 17 and 18:
Zusammenfassung zurückliegender Ja
Page 19 and 20:
Executive Compensation and Firm Per
Page 21 and 22:
Page 23 and 24:
Page 25 and 26:
Page 27 and 28:
Page 29 and 30:
Page 31 and 32:
Page 33 and 34:
Page 35 and 36:
Page 37 and 38:
Page 39 and 40:
Page 41 and 42:
Page 43 and 44:
Page 45 and 46:
Page 47 and 48:
Page 49 and 50:
Page 51 and 52:
Page 53 and 54:
Page 55 and 56:
Page 57 and 58:
Page 59 and 60:
Page 61 and 62:
Page 63 and 64:
Page 65 and 66:
Page 67 and 68:
Page 69 and 70:
Which Pay for what Performance? Evi
Page 71 and 72:
Page 73 and 74:
Page 75 and 76:
Page 77 and 78:
Page 79 and 80:
Page 81 and 82:
Page 83 and 84:
Page 85 and 86:
Page 87 and 88:
Page 89 and 90:
Page 91 and 92:
Page 93 and 94:
Page 95 and 96: Which Pay for what Performance? Evi
Page 123 and 124: Profit Sharing with Executives cash
Page 125 and 126: Profit Sharing with Executives 3.2
Page 127 and 128: Profit Sharing with Executives debt
Page 131 and 132: Profit Sharing with Executives Inve
Page 135 and 136: Profit Sharing with Executives tion
Page 137 and 138: Profit Sharing with Executives from
Page 139 and 140: Profit Sharing with Executives The
Page 141 and 142: Profit Sharing with Executives sect
Page 143 and 144: Profit Sharing with Executives a lo
Page 145: Profit Sharing with Executives vari
Page 149 and 150: Profit Sharing with Executives mana
Page 151 and 152: Profit Sharing with Executives shar
Page 153 and 154: Profit Sharing with Executives the
Page 155 and 156: Profit Sharing with Executives Refe
Page 157 and 158: Profit Sharing with Executives Larc
Page 159 and 160: Profit Sharing with Executives Tabl
Page 167 and 168: Complete References Bertrand, M. an
Page 169 and 170: Complete References Frydman, C. and
Page 171 and 172: Complete References Lambert, R. and
Page 173 and 174: Erklärung Ich versichere hiermit,
show all

Three Essays on Executive Compensation - KOPS - Universität ...

Create successful ePaper yourself

Delete template?

Save as template?