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An investigation into interlinkages between CEO compensation and firm risk

Bhat, Chaitra Harish LU and Sveinsdottir, Thordis LU (2016) BUSN89 20161
Department of Business Administration
Abstract
Purpose: The purpose of this research is to do an investigation on the interlinkages between CEO compensation and the firm risk. It further intends to see in particular, whether the firm risk has been interlinked with components of compensation like CEO’s incentive/bonus and stock options.
Theoretical framework: CEO compensation, Incentives programs, Stock option, Risk management, Principal agency theory, Managerial power theory, Econometrics.
Method: Regression analysis were CEO compensation is a dependent variable in one regression, Proportion of incentive/bonus in one regression and Stock option as a limited dependent variable. Explanatory variables are firm risk, firm size and leverage. Quality test were performed on the data to... (More)
Purpose: The purpose of this research is to do an investigation on the interlinkages between CEO compensation and the firm risk. It further intends to see in particular, whether the firm risk has been interlinked with components of compensation like CEO’s incentive/bonus and stock options.
Theoretical framework: CEO compensation, Incentives programs, Stock option, Risk management, Principal agency theory, Managerial power theory, Econometrics.
Method: Regression analysis were CEO compensation is a dependent variable in one regression, Proportion of incentive/bonus in one regression and Stock option as a limited dependent variable. Explanatory variables are firm risk, firm size and leverage. Quality test were performed on the data to secure the credibility and reliability of the data.
Empirical analysis: Found a significant relationship, but negative one, between CEO compensation with leverage. Insignificant relationship was both with firm risk and firm size. For analysis of the relationship of Proportion of incentives/bonus all of the explanatory variables were insignificant. Significant relationship was found between stock option and both leverage and firm size. A negative with leverage and a positive one for firm size. Insignificant relationship with firm risk. Based on 95% α-level.
Conclusion: Based on analysis of Swedish large cap companies the CEO compensation is mostly influenced by managerial power theory rather than agency theory. CEO supply and demand forces can influence the compensation structure. No evidence for the dependency of compensation with firm risk, leverage and size. (Less)
Popular Abstract
Based on analysis of Swedish large cap companies the CEO compensation is mostly influenced by managerial power theory rather than agency theory. CEO supply and demand forces can influence the compensation structure. No evidence for the dependency of compensation with firm risk, leverage and size.
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author
Bhat, Chaitra Harish LU and Sveinsdottir, Thordis LU
supervisor
organization
course
BUSN89 20161
year
type
H1 - Master's Degree (One Year)
subject
keywords
CEO compensation, Incentives, Bonus, Stock options, Risk management, Firm risk, Firm size, Firm Leverage, Corporate governance, Agency theory, Managerial power theory, Regression analysis.
language
English
id
8889188
date added to LUP
2016-09-13 14:28:49
date last changed
2016-09-13 14:28:49
@misc{8889188,
  abstract     = {Purpose: The purpose of this research is to do an investigation on the interlinkages between CEO compensation and the firm risk. It further intends to see in particular, whether the firm risk has been interlinked with components of compensation like CEO’s incentive/bonus and stock options.
Theoretical framework: CEO compensation, Incentives programs, Stock option, Risk management, Principal agency theory, Managerial power theory, Econometrics.
Method: Regression analysis were CEO compensation is a dependent variable in one regression, Proportion of incentive/bonus in one regression and Stock option as a limited dependent variable. Explanatory variables are firm risk, firm size and leverage. Quality test were performed on the data to secure the credibility and reliability of the data.
Empirical analysis: Found a significant relationship, but negative one, between CEO compensation with leverage. Insignificant relationship was both with firm risk and firm size. For analysis of the relationship of Proportion of incentives/bonus all of the explanatory variables were insignificant. Significant relationship was found between stock option and both leverage and firm size. A negative with leverage and a positive one for firm size. Insignificant relationship with firm risk. Based on 95% α-level.
Conclusion: Based on analysis of Swedish large cap companies the CEO compensation is mostly influenced by managerial power theory rather than agency theory. CEO supply and demand forces can influence the compensation structure. No evidence for the dependency of compensation with firm risk, leverage and size.},
  author       = {Bhat, Chaitra Harish and Sveinsdottir, Thordis},
  keyword      = {CEO compensation,Incentives,Bonus,Stock options,Risk management,Firm risk,Firm size,Firm Leverage,Corporate governance,Agency theory,Managerial power theory,Regression analysis.},
  language     = {eng},
  note         = {Student Paper},
  title        = {An investigation into interlinkages between CEO compensation and firm risk},
  year         = {2016},
}