Samenvatting
Management Control - Papers Summary week 6
- Instelling
- Universiteit Van Amsterdam (UvA)
A detailed summary of all mandatory papers of week 6
[Meer zien]Voorbeeld 2 van de 5 pagina's
Voorbeeld 2 van de 5 pagina's
In winkelwagengesponsord bericht van onze partner
Verkoper
VolgenVoorbeeld van de inhoud
Management Control Papers summary week 6Core et al. 1999
This paper investigates the relationship between the level of CEO compensation as well as
influence in the board and the quality of corporate governance (CG) within companies.
Furthermore, it is examined whether firms with weak corporate governance have a poor
performance.
Several prior studies have been conducted in this area, but the results are not homogenous.
Therefore, it is not clear what the impact of board structure and ownership structure are on
CEO remuneration and future performance. This tries to fill the gap by investigating the
association between executive pay and a comprehensive set of board and ownership
structure variables. The researchers expect to find a negative relationship between the
quality of CG and level of CEO compensation.
The hypotheses for this research are
- H0: The observed board and ownership structures induce optimal CEO contracting
and firm performance
- H1: Certain board and ownership structures are conductive to CEO entrenchment.
The results of this paper show that firstly the CEO compensation is a decreasing function of
the percentage of the board composed of inside directors and an increasing function of
board size. Looking at the ownership structure, it is found that CEO compensation is a
decreasing function of CEO ownership stake meaning that the more stake they have in the
company the less they pay to themselves. These results are also present when someone on
the BoD or an external shareholder owns 5% or more of the shares which is because of
increased corporate governance. Overall, there is a perceived cross-sectional association
between board characteristics including ownership structures and the level of CEO
compensation. The results also show that vice versa weak corporate governance leads to
greater agency problems that result in higher incentives to CEOs.
Concluded from this paper, we can say that weak corporate governance can be reached
when CEO own many shares because he can influence the board for his own good to earn
more incentives. Then there is no need to perform better and weak firm performance is the
result.
Alternative:
Companies with a weak corporate governance indicate low agency problems (DEY), so not
necessarily the case that quality CG is low that CEO compensation is higher. A way to provide
incentives (stock options); and manipulation, quality of BoD.
Dey 2008
This paper investigates the relationship between corporate governance and agency conflicts.
Previous research and theory show that the relation between corporate governance and
firm performance, which should work firm value maximizing, are a function of agency
conflicts. This brings to the fundamental hypotheses in: “The demand for higher quality
corporate governance is greater in firms with greater need for oversight”.
, Agency conflicts are conflicts of interest between ownership and management in a company
which occur when ownership and control (management) are separated. Because of these
conflicts, managers have an incentive to maximize their own utility even when this is not
firm value and shareholder wealth maximizing. The governance structure of a firm is
typically referred to as the set of mechanisms to minimize agency conflicts. In other words,
agency conflicts and governance mechanisms in a firm are likely to be complementary i.e.
higher level of agency conflicts will result in stronger corporate governance structures. In
sum, the hypothesis to test these theories in this paper is:
- Governance structures in a firm are a function of agency conflicts in a firm.
The results of the paper indicate that governance structures arise in response to agency
conflicts in firms. Or differently stated, bigger agency problems require better corporate
governance quality. Firms with higher levels of agency conflicts have more “efficient”
governance structures in place, particularly, more independent and better functioning board
and audit committees, and a better-quality auditor. Furthermore, the results suggest that
the composition and functioning of the board, an effective audit committee, and the stock
and option compensation provided to directors are significantly associated with future firm
performance. Also, the outcomes suggest that the relation between various aspects of
governance and firm performance is a function of the firm’s level of agency conflicts. All in
all, the results indicate that for the theory that the presence and role of governance
structures vary across firms depending on various firm-specific characteristics, one of which
the level of agency conflicts present in firms.
Armstrong et al. 2012
This paper the relationship between corporate governance and CEO pay levels and to what
extent the higher CEO pay found for companies that use compensation consultants is related
to governance differences. Prior research found that CEO pay levels are higher for firms with
weak corporate governance. One possible reason for this, found by prior studies, is that
these firms make use of compensati0n consultants. These consultants are hired to evaluate
and design CEO pay package contracts which might justify excessive pay to CEOs to other
board members and the owners. But no evidence is found on why pay is exactly higher when
consultants are deployed. This is because although consultants provide advice for the CEO
pack package, the decision lies with the other members of the board of directors. On the
other hand, opponents of this statement claim that consultant have strong incentives to
inflate CEO pay so they can ensure future business and revenues. This seems odd because
consultants are hired to make an objective assessment of what the senior executives should
be paid.
There are no hypotheses used in this paper. But the writers extend prior compensation and
governance studies to examine whether compensation consultant use is associated with
weaker governance and, if so, whether weaker governance explains the observed relation
between consultant usage and higher CEO pay.
The results show that total pay level tend to be higher when board members are busier, the
lead director is an inside, and the firm has dual class voting shares. The governance results
support that CEO pay levels are higher than predicted when corporate governance is
weaker. Also, firms with weaker governance seem to have a higher likeliness of using
compensation consultants. All in all, the results show that weaker corporate governance
Voordelen van het kopen van samenvattingen bij Stuvia op een rij:
Verzekerd van kwaliteit door reviews
Stuvia-klanten hebben meer dan 700.000 samenvattingen beoordeeld. Zo weet je zeker dat je de beste documenten koopt!
Snel en makkelijk kopen
Je betaalt supersnel en eenmalig met iDeal, creditcard of Stuvia-tegoed voor de samenvatting. Zonder lidmaatschap.
Focus op de essentie
Samenvattingen worden geschreven voor en door anderen. Daarom zijn de samenvattingen altijd betrouwbaar en actueel. Zo kom je snel tot de kern!
Veelgestelde vragen
Wat krijg ik als ik dit document koop?
Je krijgt een PDF, die direct beschikbaar is na je aankoop. Het gekochte document is altijd, overal en oneindig toegankelijk via je profiel.
Tevredenheidsgarantie: hoe werkt dat?
Onze tevredenheidsgarantie zorgt ervoor dat je altijd een studiedocument vindt dat goed bij je past. Je vult een formulier in en onze klantenservice regelt de rest.
Van wie koop ik deze samenvatting?
Stuvia is een marktplaats, je koop dit document dus niet van ons, maar van verkoper tjebbehuisinga. Stuvia faciliteert de betaling aan de verkoper.
Zit ik meteen vast aan een abonnement?
Nee, je koopt alleen deze samenvatting voor €2,99. Je zit daarna nergens aan vast.
Is Stuvia te vertrouwen?
4,6 sterren op Google & Trustpilot (+1000 reviews)
Afgelopen 30 dagen zijn er 61231 samenvattingen verkocht
Opgericht in 2010, al 15 jaar dé plek om samenvattingen te kopen