The managerial labor market and the governance role of shareholder control structures
Finance & Accounting
|Speaker:||Grzegorz Tojanowski, Tilburg University|
|Date:||Friday 20 February 2004|
|Location:||Old Staff common room, Streatham Court|
We simultaneously analyze two mechanisms of the managerial labor market: CEO turnover and monetary remuneration schemes. Sample selection models and hazard analyses are applied to a random sample of 250 firms listed on the London Stock Exchange. Our approach yields novel results (compared to earlier UK research): the managerial remuneration and the termination of labor contracts play an important role in mitigating agency problems between managers and shareholders. Both the CEOs industry-adjusted monetary compensation and CEO replacement are strongly performance-sensitive. There is little evidence of outside shareholder monitoring whereas CEOs with strong voting power successfully resist replacement irrespective of corporate performance. CEO remuneration is more sensitive to stock price performance in firms with strong outside shareholders whereas remuneration in insider-dominated firms is more sensitive to measures of accounting returns. When stock prices decrease, CEOs seem to compensate disappointing stock performance by augmenting the cash-based compensation package. Finally, the presence of a remuneration committee has no significant impact on remuneration.
JEL classification: G30; G32; G34; J33
Keywords: Corporate governance, agency costs, CEO remuneration, disciplinary CEO turnover, ownership and control entrenchment, sample selection model