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Board Independence, CEO Ownership, and Compensation
Author(s) -
Chung Hae Jin,
John Kose
Publication year - 2017
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12179
Subject(s) - corporate governance , business , accounting , proxy (statistics) , executive compensation , enterprise value , independence (probability theory) , control (management) , compensation (psychology) , finance , economics , management , psychology , statistics , mathematics , machine learning , computer science , psychoanalysis
Using the percentage of outside directors as a proxy for board monitoring, we find empirical evidence that board monitoring and CEO pay–performance sensitivity ( PPS ) are substitutes. In 2002, major US exchanges began to require that the boards of listed firms have more than 50% outside directors. In the case of firms affected by this requirement, their CEO PPS decreased significantly because of a reduction of CEO ownership relative to the control group, especially in the case of firms in which outside directors are better informed. We find that this substitution in governance mechanisms did not change overall firm value.