TITLE

Cronyism and the Determinants of Chairman Compensation

AUTHOR(S)
Oxelheim, Lars; Clarkson, Kevin
PUB. DATE
September 2015
SOURCE
Journal of Business Ethics;Sep2015, Vol. 131 Issue 1, p69
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This study examines determinants of chairman compensation in a supervisory board setting and, specifically, the relationship between chairman and CEO compensation. Using a sample of publicly listed firms in Sweden, the study indicates that chairman compensation-despite its fixed nature-is reflective of firm performance via a positive relationship to CEO compensation. As CEO compensation is set before chairman compensation, we argue that the chairman may be inclined to conspire with the CEO in earnings management efforts at the expense of monitoring on behalf of investors. Supporting our cronyism argument, we find evidence that the gap between chairman and CEO compensation is less at firms where the chairman had previously served in the executive management team. The close ties between the chairman and CEO compensation add to the understanding of the relative success of the managerial power theory versus the agency theory in explaining CEO compensation.
ACCESSION #
109555741

 

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