Director optimism and CEO equity compensation

Douglas O. Cook, Jaideep Chowdhury and Weiwei Zhang

Journal of Empirical Finance, 2023, vol. 72, issue C, 143-162

Abstract: Using a continuous measure of board optimism, we find that more optimistic boards offer CEOs a significantly lower proportion of option grants. Incorporating behavioral traits of directors and CEOs, we find that the within-firm optimism discrepancy is significantly associated with CEO compensation structure, and that the bargaining power of CEOs and corporate boards impact the relationship between the difference in optimism and CEO compensation structures. That is, more optimistic and powerful CEOs tend to negotiate compensation packages with greater proportions of equity-based pay and smaller proportions in cash. Interestingly, powerful but less optimistic boards exploit CEO optimism by offering them lower percentages of equity-based pay. On the other hand, CEO compensation contracts exhibit a higher intensity of equity-based pay in firms that have weak and less optimistic boards, thereby aligning with the preferences of optimistic CEOs. Our study contributes to the CEO compensation literature by investigating how the interaction of behavioral traits and bargaining power between corporate boards and CEOs can influence CEO compensation schemes.

Keywords: Optimism; Board of directors; CEO equity compensation; CEO and board bargaining power (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927539823000324
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:empfin:v:72:y:2023:i:c:p:143-162

DOI: 10.1016/j.jempfin.2023.03.010

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().