Additional Evidence on the Association Between Director Stock Ownership and Incentive Compensation

Additional Evidence on the Association Between Director Stock Ownership and Incentive Compensation Governance scholars argue that outside directors have little incentive to monitor managers when their equity stake in the firm is not significant. A sample with a substantial level of outside director shareholdings is examined and a negative relationship between incentive compensation and outside director stock ownership is found. While firms pay higher incentive compensation when they have greater investment opportunities, the compensation contains excess pay due to ineffective corporate governance. Overall, the results suggest more effective corporate governance and lower incentive compensation when outside director stock ownership is higher. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Additional Evidence on the Association Between Director Stock Ownership and Incentive Compensation

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2002 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1015726224797
Publisher site
See Article on Publisher Site

Abstract

Governance scholars argue that outside directors have little incentive to monitor managers when their equity stake in the firm is not significant. A sample with a substantial level of outside director shareholdings is examined and a negative relationship between incentive compensation and outside director stock ownership is found. While firms pay higher incentive compensation when they have greater investment opportunities, the compensation contains excess pay due to ineffective corporate governance. Overall, the results suggest more effective corporate governance and lower incentive compensation when outside director stock ownership is higher.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 13, 2004

References

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