Foundation-controlled firms and CEO compensation
(2024) In International Review of Financial Analysis 95(Part B).- Abstract
- We explore the effects of foundation control on CEO incentive contracts. Unlike other blockholders, foundations do not consume the entirety of their cash flow rights, which attenuates the incentives of the controlling foundations to directly monitor the management. We present a simple model of moral hazard which predicts that foundation-controlled (FC) firms will resort to executive compensation as an alternative disciplining mechanism. Using a sample of listed Swedish family firms over the period of 2001–2014, we find that CEOs in FC firms are awarded more stock options compared to their peers in non-FC firms. The performance sensitivity of their option portfolios is also higher, but we do not find this to be the case for stock grants.... (More)
- We explore the effects of foundation control on CEO incentive contracts. Unlike other blockholders, foundations do not consume the entirety of their cash flow rights, which attenuates the incentives of the controlling foundations to directly monitor the management. We present a simple model of moral hazard which predicts that foundation-controlled (FC) firms will resort to executive compensation as an alternative disciplining mechanism. Using a sample of listed Swedish family firms over the period of 2001–2014, we find that CEOs in FC firms are awarded more stock options compared to their peers in non-FC firms. The performance sensitivity of their option portfolios is also higher, but we do not find this to be the case for stock grants. Lastly, there is no conclusive evidence of differences in the levels of cash compensation. Our findings support the view that incentive contracts can substitute for large shareholder monitoring. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/7f96ef9f-63b9-4adf-90e8-c747ad35b484
- author
- Nguyen, Diem LU and Moursli, Reda LU
- organization
- publishing date
- 2024
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- Foundation, Executive compensation, Family firms, Monitoring
- in
- International Review of Financial Analysis
- volume
- 95
- issue
- Part B
- article number
- 103417
- publisher
- North-Holland
- external identifiers
-
- scopus:85198291160
- ISSN
- 1057-5219
- DOI
- 10.1016/j.irfa.2024.103417
- language
- English
- LU publication?
- yes
- id
- 7f96ef9f-63b9-4adf-90e8-c747ad35b484
- date added to LUP
- 2024-07-11 16:53:40
- date last changed
- 2024-09-02 15:19:31
@article{7f96ef9f-63b9-4adf-90e8-c747ad35b484, abstract = {{We explore the effects of foundation control on CEO incentive contracts. Unlike other blockholders, foundations do not consume the entirety of their cash flow rights, which attenuates the incentives of the controlling foundations to directly monitor the management. We present a simple model of moral hazard which predicts that foundation-controlled (FC) firms will resort to executive compensation as an alternative disciplining mechanism. Using a sample of listed Swedish family firms over the period of 2001–2014, we find that CEOs in FC firms are awarded more stock options compared to their peers in non-FC firms. The performance sensitivity of their option portfolios is also higher, but we do not find this to be the case for stock grants. Lastly, there is no conclusive evidence of differences in the levels of cash compensation. Our findings support the view that incentive contracts can substitute for large shareholder monitoring.}}, author = {{Nguyen, Diem and Moursli, Reda}}, issn = {{1057-5219}}, keywords = {{Foundation; Executive compensation; Family firms; Monitoring}}, language = {{eng}}, number = {{Part B}}, publisher = {{North-Holland}}, series = {{International Review of Financial Analysis}}, title = {{Foundation-controlled firms and CEO compensation}}, url = {{http://dx.doi.org/10.1016/j.irfa.2024.103417}}, doi = {{10.1016/j.irfa.2024.103417}}, volume = {{95}}, year = {{2024}}, }