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Directors' Pay and Turnover: An Application to a Sample of Large UK Firms
Author(s) -
Conyon Martin J.
Publication year - 1998
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/1468-0084.00110
Subject(s) - dismissal , profitability index , corporate governance , shareholder , panel data , accounting , business , sample (material) , agency cost , agency (philosophy) , demographic economics , economics , econometrics , finance , philosophy , chemistry , chromatography , epistemology , political science , law
This paper examines the operation of the UK managerial labour market. We test the twin agency predictions that directors' pay is positively related to corporate performance and CEO turnover is negatively associated with firm profitability. We find that (i) the panel data econometric evidence reveals a significant and positive correlation between directors' pay, company performance and size, (ii) the CEO turnover model predicts a negative, and significant, association with pre‐dated shareholder returns: the data is consistent with the view that CEOs are disciplined by the threat of dismissal, (iii) boardroom governance factors (e.g. proportion of non‐executives and board size) are only of some importance in the CEO succession process.