Executive Pay, Free Float, and Firm Performance: Evidence from Germany

CEFS Working Paper No. 6

22 Pages Posted: 29 Mar 2005

See all articles by Christoph Kaserer

Christoph Kaserer

Technische Universität München (TUM)

Niklas Wagner

Passau University

Date Written: November 2004

Abstract

In this paper we examine potential structural changes in the setup of executive payment schemes in Germany during the 1990 to 2002 period. Given substantial changes in corporate governance during this period, our initial hypothesis is that executive pay in later periods shows a stronger relation with firm performance than it was the case in the early 1990s. However, empirical evidence based on 1990 to 1993 versus 1998 to 2002 data does not support this hypothesis. Regression results based on a WLS-WITHIN estimator explain up to 90 percent of the variability of normalized executive pay while the relation with measures of firm performance rather weakens for the later period. Normalized executive pay significantly increases with free float. Also, a substantial increase in payments during the 1990s, which amounts to a 47 percent increase on average, is higher for companies with larger free float. We additionally find that German companies which obtained a U.S. listing show higher increases in normalized payments. Our overall evidence is consistent with the hypothesis that executive payment decisions may result under deficient mechanisms of corporate control.

Keywords: Executive pay, free float, corporate control

JEL Classification: G30, G32, J33, G34

Suggested Citation

Kaserer, Christoph and Wagner, Niklas F., Executive Pay, Free Float, and Firm Performance: Evidence from Germany (November 2004). CEFS Working Paper No. 6, Available at SSRN: https://ssrn.com/abstract=650621 or http://dx.doi.org/10.2139/ssrn.650621

Christoph Kaserer (Contact Author)

Technische Universität München (TUM) ( email )

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Munich, D-80290
Germany
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Niklas F. Wagner

Passau University ( email )

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Passau, 94030
Germany