Corporate Governance, CEO Compensation, and Firm Performance

Posted: 28 Mar 1997

See all articles by John E. Core

John E. Core

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Robert W. Holthausen

University of Pennsylvania - Accounting Department

David F. Larcker

Stanford Graduate School of Business; Stanford University - Hoover Institution; European Corporate Governance Institute (ECGI)

Date Written: February 1997

Abstract

We examine whether board and ownership structure variables explain the level of chief executive officer (CEO) compensation. After controlling for standard economic determinants (i.e., the firm's demand for a high-quality CEO, firm performance, and risk), we find that board and ownership structure variables explain a significant amount of cross-sectional variation in CEO compensation. We also find that the predicted component of compensation arising from these board and ownership structure characteristics has a significant negative relation with subsequent firm accounting performance. Overall, our analysis indicates that unusually large CEO compensation levels reflect managerial entrenchment or poor governance mechanisms, and that firms with more entrenched managers or poorer governance systems perform worse.

JEL Classification: G32, G34, J31, J44

Suggested Citation

Core, John E. and Holthausen, Robert W. and Larcker, David F., Corporate Governance, CEO Compensation, and Firm Performance (February 1997). Available at SSRN: https://ssrn.com/abstract=10376

John E. Core (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02138
United States

Robert W. Holthausen

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7781 (Phone)
215-898-3664 (Fax)

David F. Larcker

Stanford Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Stanford University - Hoover Institution ( email )

Stanford, CA 94305
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
11,827
PlumX Metrics