Date: 06 March 2020, Friday
Place: Faculty of Business Administration,
Ümit Berkman Seminar Room (MA-330)
“The Elephant (or Donkey) Outside the Boardroom:
Government Political Leniency and Executive Compensation”
Abstract: We examine the impact of governments on executive compensation based on their leniency on the left-right political spectrum. We find that left-leaning governments have a significant negative impact on CEO pay relative to their right-leaning counterparts. We further show that left restrains powerful CEOs from extracting rents, and this mitigates its overall negative impact on firm value. However, left also imposes limits on performance- and promotion-based incentives for top executives, and this exacerbates its negative value impact. Our results are robust to a battery of endogeneity corrections and robustness checks. We conclude that politics plays a value-influencing role in executive compensation.
Keywords: Executive compensation; Politics; Managerial Power; Efficient Contracting; Firm value
JEL Codes: G34, G39