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Does social capital mitigate agency problems? Evidence from Chief Executive Officer (CEO) compensation

Hoi, C-K., Wu, Q. & Zhang, H., Aug-2019, In : Journal of Financial Economics. 133, 2, p. 498-519 22 p.

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DOI

We find that social capital, as captured by secular norms and social networks surrounding corporate headquarters, is negatively associated with levels of CEO compensation. This relation holds in a range of robustness tests including those that address omitted variable bias and reverse causality. Additionally, social capital reduces the likelihood that firms make opportunistic option grant awards that unduly favor CEOs, including lucky awards, backdated awards, and unscheduled awards. Social capital also lessens the accretive effect of CEO power on CEO compensation. These findings indicate that social capital mitigates agency problems by restraining managerial rent extraction in CEO compensation. (C) 2019 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)498-519
Number of pages22
JournalJournal of Financial Economics
Volume133
Issue number2
Early online date14-Feb-2019
Publication statusPublished - Aug-2019

    Keywords

  • Executive compensation, Opportunistic timing, Backdating, Social capital, Social norms, CORPORATE-DECISION, CULTURE, MATTER, WORK, REDISTRIBUTION, PREFERENCES, INCENTIVES, MANAGERS, RELIGION, TURNOUT

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