Stockholder Wealth Maximization during the Troubled Asset Relief Program Period: Is Executive Pay Harmful?

Eddy Junarsin, Rizky Yusviento Pelawi (), Jeffrey Bastanta Pelawi and Jordan Kristanto
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Eddy Junarsin: SUNY Cortland, Cortland, NY 13045, USA
Rizky Yusviento Pelawi: Faculty of Economics and Business, Gajah Mada University, Yogyakarta 55281, Indonesia
Jeffrey Bastanta Pelawi: Faculty of Economics and Business, Universitas Brawijaya, Jakarta 12870, Indonesia
Jordan Kristanto: KPMG International, 1182 Amstelveen, The Netherlands

JRFM, 2024, vol. 17, issue 1, 1-25

Abstract: This study investigates governance mechanisms and their relation to firm value, i.e., executive compensation restrictions during the regulatory period and their effects on the performance of firms that received Troubled Asset Relief Program (TARP) funds. We employ an event study to investigate the market reactions for TARP recipients, followed by OLS regression to examine the stock return effects of 10 announcements. For comparison, we also employ a multivariate regression model (MVRM) based on a system of equations with seemingly unrelated regressions (SURs). Our evidence shows that changes in firm value have a negative and significant relationship with changes in total compensation for TARP companies that have paid back their debts to the government. However, the relationship is weaker than that for TARP companies that have not paid back the bailout money.

Keywords: executive compensation restrictions; financial crisis; TARP; shareholder wealth; corporate governance (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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