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CEO compensation and its relation to firm performance

Lejdelin, Martin and Lindén, Patrik (2008)
Department of Business Administration
Abstract
Purpose: The purpose of the thesis is to examine how the pay-performance relationship behaves for firms listed on the Stockholm Stock Exchange large cap list and attempt to draw inferences about how nation-specific aspects characterizing listed Swedish firms affect the relationship. Method: The method is a regression analysis using regressing performance on pay along with the control variables firm size and leverage. Data quality testing procedures are carried out in order to secure the credibility of the data and the inferences. Empirical analysis: A significant relationship between pay and performance is found with the performance proxy return on assets (ROA) when lagged one period, where the relationship is negative. Positive... (More)
Purpose: The purpose of the thesis is to examine how the pay-performance relationship behaves for firms listed on the Stockholm Stock Exchange large cap list and attempt to draw inferences about how nation-specific aspects characterizing listed Swedish firms affect the relationship. Method: The method is a regression analysis using regressing performance on pay along with the control variables firm size and leverage. Data quality testing procedures are carried out in order to secure the credibility of the data and the inferences. Empirical analysis: A significant relationship between pay and performance is found with the performance proxy return on assets (ROA) when lagged one period, where the relationship is negative. Positive significance is found with the performance proxy share development when lagged one period. Salary regressed on ROA lagged one period along with leverage and market cap only resulted in significance for market cap on a 95% á-level. Conclusion: Since share development only have a marginal impact on the level of executive pay and the since ROA is negatively aligned with the remuneration levels we find weak support for bonus being an effect mechanism for aligning the interest of principals and agents among Swedish large cap firms. (Less)
Please use this url to cite or link to this publication:
author
Lejdelin, Martin and Lindén, Patrik
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Pay-performance, Performance measures, Agency theory, Regression analysis, Management of enterprises, Företagsledning, management
language
Swedish
id
1611836
date added to LUP
2008-12-19
date last changed
2012-04-02 18:08:46
@misc{1611836,
  abstract     = {Purpose: The purpose of the thesis is to examine how the pay-performance relationship behaves for firms listed on the Stockholm Stock Exchange large cap list and attempt to draw inferences about how nation-specific aspects characterizing listed Swedish firms affect the relationship. Method: The method is a regression analysis using regressing performance on pay along with the control variables firm size and leverage. Data quality testing procedures are carried out in order to secure the credibility of the data and the inferences. Empirical analysis: A significant relationship between pay and performance is found with the performance proxy return on assets (ROA) when lagged one period, where the relationship is negative. Positive significance is found with the performance proxy share development when lagged one period. Salary regressed on ROA lagged one period along with leverage and market cap only resulted in significance for market cap on a 95% á-level. Conclusion: Since share development only have a marginal impact on the level of executive pay and the since ROA is negatively aligned with the remuneration levels we find weak support for bonus being an effect mechanism for aligning the interest of principals and agents among Swedish large cap firms.},
  author       = {Lejdelin, Martin and Lindén, Patrik},
  keyword      = {Pay-performance,Performance measures,Agency theory,Regression analysis,Management of enterprises,Företagsledning, management},
  language     = {swe},
  note         = {Student Paper},
  title        = {CEO compensation and its relation to firm performance},
  year         = {2008},
}