Title: Determinants and consequences of large CEO pay

Authors: Kiridaran Kanagaretnam, Gerald J. Lobo, Emad Mohammad

Addresses: DeGroote School of Business, McMaster University, Hamilton, Ontario, L8S 4M4, Canada. ' C.T. Bauer College of Business, University of Houston, Houston, Texas 77204, USA. ' DeGroote School of Business, McMaster University, Hamilton, Ontario, L8S 4M4, Canada

Abstract: We investigate the association between large CEO pay and the underlying economic determinants of pay, governance variables, variables capturing director pay, and other potential variables that may explain large CEO payouts. We also examine whether firms with large CEO pay have better future performance and use more financial reporting discretion than other firms. Our study is motivated by the large payouts to CEOs over the last decade that continue to attract considerable attention from institutional investors, regulators and the popular press. Our results indicate that whether a firm has large CEO pay is only weakly related to the underlying economic determinants but strongly related to components of outside director remuneration, the dual role of CEO and board chair, asset change, whether the firm has a new CEO, and CEO equity ownership. Additionally, we find that large CEO pay firms engage in higher levels of financial reporting discretion and have weaker future performance.

Keywords: executive compensation; economic determinants; corporate governance; financial reporting discretion; future performance; CEO pay; director pay; large payouts.

DOI: 10.1504/IJAF.2008.020237

International Journal of Accounting and Finance, 2008 Vol.1 No.1, pp.61 - 82

Published online: 09 Sep 2008 *

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