Underperformance of founder-led firms: An examination of compensation contracting theories during the executive stock options backdating scandal

Brian T. Carver, Brandon N. Cline and Matthew L. Hoag

Journal of Corporate Finance, 2013, vol. 23, issue C, 294-310

Abstract: Using the executive stock option (ESO) backdating scandal as a backdrop, this paper examines whether compensation committees can effectively set executive compensation contracts in the presence of a founding CEO. Analyzing a sample of firms accused of backdating ESO grant dates and a control sample of non-backdating firms, we find evidence suggesting that managerial power influences the decision to backdate. Specifically, our analysis indicates the presence of a founder CEO increases the likelihood that ESOs are backdated by 22%. We further find that founder-led firms strongly underperform a matched sample of non-backdating firms. This finding contrasts a number of studies that document superior operating and stock return performance for founder-led firms.

Keywords: Optimal contracting; Managerial power; Executive compensation; Founder CEO; Option backdating (search for similar items in EconPapers)
JEL-codes: G30 G32 M52 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:23:y:2013:i:c:p:294-310

DOI: 10.1016/j.jcorpfin.2013.09.002

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