Which came first, CEO compensation or firm performance? The causality dilemma in European companiesAleksandra S. Smirnova and Marina Zavertiaeva Research in International Business and Finance, 2017, vol. 42, issue C, 658-673 Abstract: This study uses both a functionalist paradigm of social theory and agency theory assumptions to examine whether CEO remuneration is performance sensitive and, vice versa, whether companies that pay their CEOs more perform better. Our analysis is based on the sample of 330 large European firms for the period from 2009 to 2013. The findings of panel data analysis confirm that CEO compensation is positively associated with corporate performance, and vice versa. The simultaneous estimation, in which we treat both compensation and firm performance as endogenous using a two-stage least squares method, shows that companies tie bonuses to accounting-based measures and this incentive pay enhances corporate internal performance. However, compensation linked to market-based measures does not improve firm performance. Keywords: CEO compensation; Firm performance; Simultaneous estimation; Sharpe index; Paradigms; Agency theory (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:42:y:2017:i:c:p:658-673 DOI: 10.1016/j.ribaf.2017.07.009 Access Statistics for this article Research in International Business and Finance is currently edited by T. Lagoarde Segot More articles in Research in International Business and Finance from Elsevier |
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