This paper examines how executive pay is set when a firm is a business group member. Using Korea as a laboratory setting, we find that member firm?s cash compensation for its executives is positively linked to the stock performance of other member firms as well as its own. Further analyses reveal that this positive link to other members?
performance is consistent with the hypothesis of corporate resources being tunnelled from one member to another for the benefit of the controlling family. We find that this link is stronger to the performance of others that are more likely to benefit from tunneling (firms in which the controlling family has cash flow rights greater than those of the subject firm) and in firms that are more likely to suffer from tunneling (firms in which the controlling family has control-ownership disparity above the sample median).
Using the pay restriction imposed on CEOs of centrally administered state-owned enterprises (CSOEs) in China in 2009, we study the effects of limiting CEO pay. Compared with CEOs of firms not subject to the restriction, the CEOs of CSOEs...Read more
This study investigates whether and how firms’ stakeholder orientation affects their inventory efficiency as well as financial performance. Using U.S. state legislatures’ staggered adoption of constituency statutes over a 24-year period (1984–...Read more
We analyze compensation design in banks. Specifically, we document associations with firm characteristics, time-series trends, pay-for-performance sensitivities, performance based pay, and the sensitivity of firm-related wealth to changes in...Read more
Contrary to signaling models’ central predictions, changes in the level of cash flows do not empirically follow changes in dividends. We use the Campbell (1991) decomposition to construct cash-flow and discount-rate news from returns and find the...Read more