The timing of changes in CEO compensation from cash bonus to equity-based compensation: Determinants and performance consequences

Zoltan Matolcsy, Yaowen Shan and Vinay Seethamraju

Journal of Contemporary Accounting and Economics, 2012, vol. 8, issue 2, 78-91

Abstract: This study examines the determinants and performance consequences of changes in CEO compensation structure. The study uses the unique setting when Australian companies have changed from cash bonus to equity-based compensation. While most US CEOs receive some form of equity-based compensation, Australian CEOs have not always been paid equity-based compensation. According to efficient contracting theories, we argue that the change to equity-based compensation is driven by changes in firm characteristics and by the occurrence of CEO turnover, the latter of which provides a less costly opportunity for such change. Our results are consistent with the above arguments. We also document a significant negative association between changes in compensation structure and subsequent firm performance in the following year, even after controlling for CEO turnover and poor governance environments. Overall, our results suggest that the initial change to equity-based compensation is part of an error learning process made by firms that leads them towards efficient CEO compensation contracts.

Keywords: CEO compensation structure; Cash and equity compensation; Corporate governance; Firm performance (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1815566912000161
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:8:y:2012:i:2:p:78-91

DOI: 10.1016/j.jcae.2012.06.002

Access Statistics for this article

Journal of Contemporary Accounting and Economics is currently edited by Agnes C.S. Cheng, P. Clarkson, F.A. Gul, Zoltan Matolcsy, Dan Simunic and Ben Srinidhi

More articles in Journal of Contemporary Accounting and Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().