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CEO duality and compensation in the market for corporate control

CEO duality and compensation in the market for corporate control Purpose – This study seeks to examine whether CEO duality further exacerbates CEOs' motivation of self‐interest to engage in mergers and acquisitions to increase their compensation. Design/methodology/approach – Regression tests using CEO compensation as the dependent variable, and CEO duality, firm size and firm performance as independent test and control variables. The regression tests are used for various sub‐samples of the firms, those that merge and those that have CEO duality. Findings – The results indicate that for merging firms CEO compensation is positively associated with firm size. However, this association is unaffected by CEO duality. For non‐merging firms, the results indicate that CEO compensation is positively associated with firm size and firm performance. CEO duality moderates the positive association between CEO compensation and firm performance. Research limitations/implications – This study is limited to the extent that it does not observe the deliberations of compensation committees in their setting of CEO compensation, but only examines the outcomes of those deliberations. A future area of research is to examine compensation schemes of merger/acquisition CEOs in the context of other government structures, such as board independence and composition. Practical implications – Shareholders who desire to keep CEO compensation levels positively associated with firm performance may consider supporting the separation of the positions of CEO and Chairperson of the Board. Originality/value – This study contributes to the literature by concluding that governance structure influences CEO compensation schemes and CEOs of merging firms command higher compensation in spite of governance structure and firm performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

CEO duality and compensation in the market for corporate control

Managerial Finance , Volume 34 (5): 12 – Apr 11, 2008

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Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
0307-4358
DOI
10.1108/03074350810866216
Publisher site
See Article on Publisher Site

Abstract

Purpose – This study seeks to examine whether CEO duality further exacerbates CEOs' motivation of self‐interest to engage in mergers and acquisitions to increase their compensation. Design/methodology/approach – Regression tests using CEO compensation as the dependent variable, and CEO duality, firm size and firm performance as independent test and control variables. The regression tests are used for various sub‐samples of the firms, those that merge and those that have CEO duality. Findings – The results indicate that for merging firms CEO compensation is positively associated with firm size. However, this association is unaffected by CEO duality. For non‐merging firms, the results indicate that CEO compensation is positively associated with firm size and firm performance. CEO duality moderates the positive association between CEO compensation and firm performance. Research limitations/implications – This study is limited to the extent that it does not observe the deliberations of compensation committees in their setting of CEO compensation, but only examines the outcomes of those deliberations. A future area of research is to examine compensation schemes of merger/acquisition CEOs in the context of other government structures, such as board independence and composition. Practical implications – Shareholders who desire to keep CEO compensation levels positively associated with firm performance may consider supporting the separation of the positions of CEO and Chairperson of the Board. Originality/value – This study contributes to the literature by concluding that governance structure influences CEO compensation schemes and CEOs of merging firms command higher compensation in spite of governance structure and firm performance.

Journal

Managerial FinanceEmerald Publishing

Published: Apr 11, 2008

Keywords: Acquisitions and mergers; Chief executives; Corporate governance; Compensation; Incentives (psychology)

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