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Monitoring and CEO Contractual Incentive Pay
Author(s) -
Yu Fan
Publication year - 2020
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12238
Subject(s) - incentive , corporate governance , outcome (game theory) , association (psychology) , test (biology) , sensitivity (control systems) , business , economics , econometrics , microeconomics , finance , psychology , paleontology , electronic engineering , engineering , psychotherapist , biology
This paper finds that a CEO who is better monitored tends to have smaller wealth‐performance sensitivity (WPS). The results are consistent with the optimal contracting view and are robust to different measures of WPS. The findings suggest caution in drawing conclusions when researchers use WPS as an observable outcome of monitoring to test the effectiveness of monitoring. The association of monitoring and WPS is not necessarily positive, as assumed by prior corporate governance research.