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Paper Stats:
Abstract Views: 152
Downloads: 42
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Legal Institutions, Board Diligence, and Top Executive Pay
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STEFFEN H. BRENNER
Humboldt University of Berlin - School of Business and Economics
JOACHIM SCHWALBACH
Humboldt University of Berlin - Faculty of Business
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Abstract:
We examine whether anti-director laws and legal director liability rules matter for whether directors act diligently in setting the compensation of CEOs. The study uses a world-wide data set covering 27 countries for the period 1995 to 2005. Controlling for a number of legal and economic determinants, we find that independent of managerial risk-aversion, CEO pay is always less generous under stricter anti-director rules and a stronger rule of law. Director liability rules are associated with more generous pay schemes. The results persist once we control for the presence of institutional investors and cross-listing in the U.S.
We interpret our findings in the sense that anti-director right make boards more accountable to shareholders. As a consequence, directors tend to act more diligently when negotiating the pay contract with the CEO. Previous research identified lower economic performance of firms from civil law countries. Our study suggests that the presence of less diligent boards in these countries may contribute to this result. Moreover, our findings indicate that governmental anti-director rules are not completely substitutable by private measures of governance.
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Keywords: CEO authority, corporate governance, comparative
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JEL Classifications: C23, G38
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Working Paper Series
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Suggested Citation
Brenner, Steffen H. and Schwalbach, Joachim, "Legal Institutions, Board Diligence, and Top Executive Pay"
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Available at SSRN: http://ssrn.com/abstract=1100670
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Contact Information for
JOACHIM
SCHWALBACH
(Contact Author)
Email address for JOACHIM
SCHWALBACH
Humboldt University of Berlin - Faculty of Business
Spandauer Str. 1
Berlin D-10178
Germany
+49-30-2093-5633 (Phone)
+49-30-2093-5629 (Fax)
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Contact Information for
STEFFEN
H.
BRENNER
Email address for STEFFEN
H.
BRENNER
Humboldt University of Berlin - School of Business and Economics
Spandauer Str. 1
D-10178 Berlin
D-10099
Germany
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Mar 04, 2008 |
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