Premium
Executive Compensation, Corporate Governance and Corporate Performance: A Simultaneous Equation Approach
Author(s) -
Ntim Collins G.,
Lindop Sarah,
Osei Kofi A.,
Thomas Dennis A.
Publication year - 2015
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2653
Subject(s) - executive compensation , corporate governance , structural equation modeling , simultaneous equations model , interdependence , endogeneity , simultaneous equations , compensation (psychology) , control (management) , econometrics , accounting , set (abstract data type) , sensitivity (control systems) , economics , computer science , psychology , management , political science , mathematics , statistics , engineering , social psychology , law , mathematical analysis , electronic engineering , programming language , differential equation
This paper investigates the association between executive compensation and performance. It uniquely utilises a comprehensive set of corporate governance mechanisms within a three‐stage least squares ( 3SLS ) simultaneous equation framework. Results based on estimating a conventional single equation model indicate that the executive pay and performance sensitivity is relatively weak, whereas those based on estimating a 3SLS model generally suggest improved executive pay and performance sensitivity. Our findings highlight the need for future research to control for possible simultaneous interdependencies when estimating the executive pay and performance link. The findings are generally robust across a raft of econometric models that control for different types of endogeneities, executive pay and performance proxies. Copyright © 2013 John Wiley & Sons, Ltd.