Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/32281
Title: Incentive contracts are not rigged by powerful CEOs
Authors: Wan, KM 
Keywords: CEO Compensation
Rigging
Stock Options
Repricing
Issue Date: 2014
Source: Critical finance review, 2014, v. 3, no. 1, p. 99-152 How to cite?
Journal: Critical finance review 
Abstract: Morse, Nanda and Seru (2011) interpret the data to suggest that more powerful CEOs expost change their incentive contracts more. My paper points out a number of issues with their inference. First and most importantly, MNS do not control for the fact that not just the most powerful but almost all firms change their incentive contracts ex-post. This is also consistent with an optimal contracting model. Nevertheless, the MNS specification attributes all explanatory power of the average incentive realignment to the cross-coefficient, i.e., to more powerful CEOs. When the average level of ex-post contract change is also controlled for, the MNS cross-coefficient (i.e., the additional change attributed to more powerful CEOs) declines by 55% and becomes insignificant. Second, newly-hired CEOs often receive large one-time startup packages. These firms should be broken out, because the MNS theory is not about newly-hired CEOsnew CEOs could not have rigged a previously-set compensation. Third, the results are sensitive to how industry performance is adjusted for. Fourth, the results are sensitive to the level of winsorization.
URI: http://hdl.handle.net/10397/32281
ISSN: 2164-5744(print)
DOI: 10.1561/104.00000016
Appears in Collections:Journal/Magazine Article

Access
View full-text via PolyU eLinks SFX Query
Show full item record

Page view(s)

49
Last Week
5
Last month
Checked on Sep 25, 2017

Google ScholarTM

Check

Altmetric



Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.