The world-wide inflation in executive compensation in recent years has been accompanied by an increase in the prevalence of long-term incentives. This article demonstrates how the subjectively perceived value of long-term incentives is affected by risk aversion, uncertainty aversion, and time preferences. Based on a unique empirical study which involved collecting primary data on executive pref...

The overall independence of a firm’s governance system depends not only on the independence of its board of directors but also on CEO influence over the other top executives. We find that board independence and independence from CEO influence in the executive suite are inversely related. Difference-in-difference estimates using a regulatory shock reveal that strengthening board independence wea...

This paper examines optimal compensation contracts when executives can hedge their personal portfolios. In a simple principal-agent framework, I predict that the Chief Executive Officer’s (CEO’s) pay-performance sensitivity decreases with the executivehedging cost. Empirically, I find evidence supporting the model’s prediction. Providing further support for the theory, I show that shareholders ...

This paper investigates the use by insiders of private information in their decision to exercise executive stock options. It is the first to categorise the exercise of an executive stock option by the proportion of stock sold at exercise. Consistent with existing research, exercises overall do not yield subsequent abnormal returns. However, we find a marked and significant difference in subsequ...

If debt markets can price the risk of projects accurately, then the interests of shareholders and the regulator diverge. Shareholders see their value maximised by an equity-rewarded executive. However we demonstrate that such executives destroy welfare by selecting excessively risky projects due to two types of government-induced distortions: the debt tax shield and the implicit too-big-to-fail...

Understanding the effects of taxes on executive compensation provides insight into the process determining this compensation and is a key input to policymakers considering changes in top income tax rates. A recent tax reform in Canada, which greatly increased the effective tax rate on stock option compensation for a subset of firms, by removing a deduction previously available at the corporate ...

Ninety-two percent of the 1348 North American executives we survey believe that improving corporate culture would increase firm value. A striking 84% their company needs to improve its culture. But how can be achieved? Our paper provides some guidance by documenting following: executives’ views on what is and it operates, distinguishing between stated values everyday norms; extent which perceiv...

This paper investigates the relationship between accounting comparability, executive compensation, conditional and unconditional conservatism, information quality. The findings suggest that conservatism comparability have a positive significant impact on compensation. Moreover, accrual earnings management can strengthen whereas this is not case with actual management. Unconditional however, doe...