Effects of Changes in Executive Compensation – In the Light of the Financial Crisis
(2010) NEKM03 20101Department of Economics
- Abstract (Swedish)
- Executive compensation is one of the most widely discussed topics since the latest economic turmoil. Shortly after the S&P 500 decreased by almost 50 percent in fall 2008, 70 percent of the 200 largest corporations in the United States reported changes in compensation packages for their executives. This study gives the reader an empirical insight into the stock market reaction following the announcement of these changes. Applying the event study methodology we analyzed 69 corporations and the corresponding stock price movements around the announcement date. The results show that the market does not react significantly on the announcement of changes in executive compensation. Shareholders do not seem to perceive these adjustments as... (More)
- Executive compensation is one of the most widely discussed topics since the latest economic turmoil. Shortly after the S&P 500 decreased by almost 50 percent in fall 2008, 70 percent of the 200 largest corporations in the United States reported changes in compensation packages for their executives. This study gives the reader an empirical insight into the stock market reaction following the announcement of these changes. Applying the event study methodology we analyzed 69 corporations and the corresponding stock price movements around the announcement date. The results show that the market does not react significantly on the announcement of changes in executive compensation. Shareholders do not seem to perceive these adjustments as fundamental and do not seem to expect an additional increase in the firm´s future value following the change. Nevertheless the study identifies that a decrease in short-term incentives is perceived as negative by the market. This reaction is oppositional to the public discussion which suggests that short-term incentives should be limited. The paper provides an indebt analysis of the difference in market reaction following short- and long-term incentive changes. Furthermore the results substantiate that companies with a poor past performance and profitability react stronger upon the announcement of changes in executive compensation. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/1623119
- author
- Fiehn, Sara LU and Struck, Henriette LU
- supervisor
- organization
- course
- NEKM03 20101
- year
- 2010
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Executive Compensation, Market Reaction, Financial Crises, Agency Problems, Event Study
- language
- English
- id
- 1623119
- date added to LUP
- 2010-06-23 10:52:04
- date last changed
- 2010-06-23 10:52:04
@misc{1623119, abstract = {{Executive compensation is one of the most widely discussed topics since the latest economic turmoil. Shortly after the S&P 500 decreased by almost 50 percent in fall 2008, 70 percent of the 200 largest corporations in the United States reported changes in compensation packages for their executives. This study gives the reader an empirical insight into the stock market reaction following the announcement of these changes. Applying the event study methodology we analyzed 69 corporations and the corresponding stock price movements around the announcement date. The results show that the market does not react significantly on the announcement of changes in executive compensation. Shareholders do not seem to perceive these adjustments as fundamental and do not seem to expect an additional increase in the firm´s future value following the change. Nevertheless the study identifies that a decrease in short-term incentives is perceived as negative by the market. This reaction is oppositional to the public discussion which suggests that short-term incentives should be limited. The paper provides an indebt analysis of the difference in market reaction following short- and long-term incentive changes. Furthermore the results substantiate that companies with a poor past performance and profitability react stronger upon the announcement of changes in executive compensation.}}, author = {{Fiehn, Sara and Struck, Henriette}}, language = {{eng}}, note = {{Student Paper}}, title = {{Effects of Changes in Executive Compensation – In the Light of the Financial Crisis}}, year = {{2010}}, }