Does social capital mitigate agency problems? Evidence from Chief Executive Officer (CEO) compensation

Hoi, Chun Keung(Stan), Qiang Wu and Hao Zhang

Journal of Financial Economics, 2019, vol. 133, issue 2, 498-519

Abstract: We find that social capital, as captured by secular norms and social networks surrounding corporate headquarters, is negatively associated with levels of CEO compensation. This relation holds in a range of robustness tests including those that address omitted variable bias and reverse causality. Additionally, social capital reduces the likelihood that firms make opportunistic option grant awards that unduly favor CEOs, including lucky awards, backdated awards, and unscheduled awards. Social capital also lessens the accretive effect of CEO power on CEO compensation. These findings indicate that social capital mitigates agency problems by restraining managerial rent extraction in CEO compensation.

Keywords: Executive compensation; Opportunistic timing; Backdating; Social capital; Social norms (search for similar items in EconPapers)
JEL-codes: D23 J33 J44 M12 Z13 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (84)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:133:y:2019:i:2:p:498-519

DOI: 10.1016/j.jfineco.2019.02.009

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