DR 08015

DR 08015
CEO COMPENSATIONS IN A STAKEHOLDERS’ REGIME:
AN EMPIRICAL INVESTIGATION WITH FRENCH LISTED
COMPANIES
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- DR 08015 -
CEO Compensations in a stakeholders’ regime: An Empirical
Investigation with French listed Companies
Anne Cazavan-Jeny*, Julien Margaine** Franck Missonier-Piera***
Juillet 2008
*
Professor, ESSEC Business School, [email protected]
Doctoral Student, ESSEC Business School
*** Professor, EM-Lyon Business School, [email protected]
**
CEO compensations in a Stakeholders’ regime: An empirical
investigation with French listed companies
Anne CAZAVAN-JENY(a), Julien MARGAINE(a) & Franck MISSONIER-PIERA(b)
(a)
ESSEC Business School,
Avenue Bernard Hirsch, B.P. 50105,
95021 Cergy-Pontoise Cedex, France
(b)
EM-Lyon Business School
23 Avenue Guy de Collongue
69134 Ecully
Not copy edited
This study received financial support from the ESSEC Research Centre (CERESSEC).
Responsibility for any errors remains entirely with the authors.
Corresponding author: Missonier-Piera Franck ([email protected])
1
CEO compensations in a Stakeholders’ regime: An empirical investigation
with French listed companies
Abstract
Intense controversy has surrounded the publication of the level of Chief Executives Officers’
(CEO) compensation over the last years. Some studies have shown a positive relationship
between CEO pay and firm performance, in the US and in the UK. Executive compensation is
also closely related to the corporate governance structure which differs significantly in France
from that in the US and the UK. Traditionally, very little information has been made publicly
available on executive compensation in France. In 2002, publicly listed companies were asked
to report CEO and board of directors’ compensation (NRE law, 15 May 2001). Using a
sample of 110 firms listed in France on the 2002-2004 periods (SBF 120 index), the purpose
of the study is to shed some light on compensation of CEOs in a country that is known to be
rather conservative on that point. We test the determinants of CEO compensations defined by
three measures: individual salary, annual bonus, and total CEO compensation. Preliminary
results show that executive compensations are explained by size and market-based
performance for the annual bonus. The findings on risk are more mitigate and indicate that the
firm specific risk is negatively associated with CEO compensation, as Gray and Cannela
(1997) have shown. Finally, the corporate governance variables have a significant impact on
the level of executive compensations.
Key words
CEO compensation, corporate governance, performance
Résumé
Ces dernières années, la publication du niveau de rémunération des dirigeants a soulevé
d’intenses controverses. Un certain nombre d’études ont mis en évidence une relation positive
entre le salaire des dirigeants et la performance de la société, aux Etats-Unis et en GrandeBretagne. La rémunération des dirigeants est également proche de la structure du
gouvernement d’entreprise. Or la structure française de gouvernement d’entreprise est
différente de celle observée aux États-Unis ou en Grande-Bretagne. En France, la tradition
voulait que l’on ne divulgue pas ou peu d’information sur le niveau de rémunération des
dirigeants. Cependant depuis 2002, les sociétés cotées doivent indiquer dans leurs rapports
annuels le montant des rémunérations des dirigeants et des membres du conseil
d’administration. (loi NRE, 15 mai 2001). A partir d’un échantillon de 110 sociétés cotées
françaises sur la période 2002-2004 (indice SBF 120), l’objet de cette recherche est d’apporter
des éclairages sur la rémunération des dirigeants dans un pays connu pour être plutôt
conservateur sur le sujet. Pour étudier les déterminants de la rémunération des dirigeants, nous
avons utilisé trois mesures de cette rémunération : la partie fixe du salaire, le bonus annuel et
la rémunération globale. Les premiers résultats montrent que les trois mesures de la
rémunération des dirigeants peuvent être expliquées par la taille de la société, et la partie
variable (bonus) par la performance boursière. Les résultats sur le risque sont plus mitigés et
indiquent que le risque spécifique de la firme est négativement associé à la rémunération des
dirigeants, ce qui confirme les résultats de Gray et Cannela (1997). Enfin, les variables de
gouvernance ont un impact significatif sur le niveau de rémunération des dirigeants.
Mots clés
Rémunération des dirigeants, gouvernement d’entreprise, performance
JEL Classification: G35, M41
2
1. Introduction
Intense controversy has surrounded the publication of the level of Chief Executives Officers’
(CEO) compensation over the last years. A host of articles have been published on Executive
compensation in US and UK companies, where public disclosures of salaries and benefits
have been usual. In these environments, some studies have concluded that there is a positive
relationship between CEO pay and firm performance. Executive compensation is also closely
related to the structure of corporate governance which differs significantly in France from that
in the US and the UK. Traditionally, very little information has been made publicly available
on executive compensation in France, but this practice is coming under pressure with
increasing foreign investment in French companies (Alcouffe and Alcouffe, 2000; Djelic and
Zarlowski, 2005). In 2002, publicly listed companies were asked to report CEO and board of
director’s compensation (NRE law, 15 May 2001).
Using a sample of 110 firms listed in France on the 2002-2004 periods, representing the SBF
120 index, the purpose of the study is to shed some light on compensation of chief executive
officers in a country that is known to be rather conservative on that point (Djelic and
Zarlowski, 2005). We test the determinants of CEO compensations using three measures: the
individual salary for year t, the annual bonus paid in year t for performance realized in year t1, and the total CEO compensation.
Preliminary results show with a pooled sample that the three metrics of executive
compensations are explained by size and market-based performance for the annual bonus and
the total CEO compensation. The findings on risk are more mitigate and indicate that the firm
specific risk is negatively associated with CEO compensation, as Gray and Cannela (1997)
have shown. Finally, the corporate governance variables have a significant impact on the level
of executive compensations.
3
The remainder of this article is organized as follows. Section 2 describes the French context
of corporate governance and presents our research hypotheses. Section 3 describes our
research design, section 4 presents our empirical findings and section 5 concludes.
2. Theoretical background
This paper investigates the compensation of top executives in France with four dimensions:
the performance of the firm, its risk, its size and its governance attributes. Before developing
our hypotheses, we underline some specificities of the French corporate governance context.
The companies of our sample have the legal status of Sociétés Anonymes (SA), which is
similar to that of the Public Limited Company (PLC) in the UK. For SAs, there are two basic
governance modes: either the incorporated company with a single board of directors (conseil
d’administration or CA), or the dual structure corporation comprising a managing board
(directoire) and supervisory board (conseil de surveillance).
In the first basic mode of SA, the chairman of the board of directors is entitled to combine this
function with that of managing director; consequently the firm is led by one person, the
Président Directeur Général or PDG (chairman and managing director). Recently, the NRE
law proposed to dissociate the chairman and the managing director. Then, we find a new basic
mode of SA, where there is a chairman (Président du CA) and a managing director (Directeur
Général). In the latter governance case, power is shared between a directoire (a body of
executive directors with wide-ranging powers of general management) and a conseil de
surveillance (composed of non-executive directors).
These differences in governance modes are of importance and will be included in our
determinants model of CEO compensations.
4
2.1 Size and compensation
Early studies argued that company size, which was assumed to act as a proxy variable
reflecting a managerial preference for growth of the enterprise, should also enter the director
pay equation (e.g. Cosh, 1975; Conyon et al., 1995). Baumol (1967) already noted that
executive salaries appeared to be "...far more closely correlated with the scale of operations
than with its profitability" (ibid, p. 46). Several arguments may explain the size-compensation
association. The complexity of large corporations—and of their operations—requires efficient
top managers. Hence, larger companies have an incentive to reward accordingly the best
managers—a scarce resource—they may attract. The hierarchical model also predict that the
larger the firm (i.e. the greater the number of hierarchical level) the higher the CEO
compensation (Mueller and Yun, 1997; Williamson, 1967).
H1: Top executives compensation is positively associated with firm size.
2.2 Performance and compensation
Quite a host of articles have focused on the CEO's pay-performance association. Yet, the
empirical literature on executives pay-performance generally concentrate on US or UK
managers and find a small or weak association between stock returns and executive pay
(Benito and Conyon, 1999). Recent studies have focused on other environments such as
Norway (Firth et al., 1996) or Germany (Elston and Goldberg, 2003) providing international
insights. This literature suggests a strong and positive link in the pay-performance relation.
Indeed, as other economic agents, managers want to maximize their own utility function, and
therefore may not act in the best interest of shareholders. This potential agency problem arises
in corporations characterised with a separation of ownership and control attributes (Fama and
Jensen, 1983). The design of particular compensation schemes may help align owners and
5
managers’ utility function, such as the set up of a link between managers’ compensation and
the firm’s performance (Baker, Jensen and Murphy, 1988).
H2: Top-executives compensation is positively associated with the firm’s performance.
2.3 Risk and compensation
From a theoretical point of view, reward should be positively associated with the risk of an
investment. As argued by Andjelkovic et al. (2002, p. 104) “Executives at firms with volatile
earnings and returns are more likely to forego bonuses or face termination, so they should
require higher base pay as compensation for this greater risk.” Yet, as pointed out by
Aggarwal and Samwick (1999), executives of firms with more volatile earnings and stock
returns will be less willing to put significant amounts of compensation "at risk". Indeed, the
same effort has not the same probability of generating a reward (i.e. bonus) upon the volatility
of the firm performance. Due to those two counter arguments, it is difficult to conclude on the
sign of the risk-compensation link.
H3: Top-executives compensation is associated with the firm’s risk.
2.4 Governance attributes and compensation
Decisions to hire, to compensate or to fire the top-executives are devoted to the Board of
Directors (Fama and Jensen, 1983). Boards may rely on different sources to determine the
level of compensation for their executives, as for example consultants hired by the CEO (Core
et al., 1999). Hence, the compensation contracts may be optimized for the CEO, not for the
company. The presence of a compensation committee helps mitigate this potential risk. Such
governance device potentially has thus an important monitoring and mediator function in the
6
setting of top compensation, as companies without such committees may not have the
appropriate mechanisms to determine whether CEOs undertook the desired actions and then
appropriately reward the CEO.
H4: Top-executive compensation is negatively associated with compensation committee.
The characteristics of the administrators, members of the compensation committee, are
determined by the way they are chosen, i.e. by the work of the nomination committee. When
selecting and submitting new candidates, the committee may prevent a selection of the
members of the board “subject to the patronage of the CEO” (Benito and Conyon, 1999, p.
122). We also must add that the compensation and the nomination committee are often the
same one.
H5: Top executive compensation is negatively associated with nomination committee
Following the example of the Caburry Report in 1992, successive French reports on corporate
governance (Viénot Reports in 1995 and 1999, Bouton Report in 2002, and AFEP-MEDEF
Report in 2003), issued by working groups sponsored by the AFEP (Association Française
des Entreprises privées, Association of French private-sector companies) and the MEDEF
(Mouvement des Entreprises en France, the French business confederation), insisted on the
creation of three committees : the audit committee, the compensation committee and the
nomination committee. A fourth one, the governance committee, emerged also among French
companies. We see the presence of these committees as a proxy for the compliance of a
company to governance principles. We then hypothesized that the presence of an audit and a
governance committee, even if not directly linked to the compensation of the CEO, may have
7
a negative impact on CEO’s pay, as they outline the commitment of a company to governance
principles and the independence of the board.
H6: Top executive compensation is negatively associated with audit committee
H7: Top executive compensation is negatively associated with governance committee
The reports also insisted on the presence, on the Board of directors, of a minimum number of
independent directors, i.e. a director who “has no relationship of any kind whatsoever with the
corporation, its group or the management of either that is such as to colour his or her
judgment” (AFEP-MEDEF Report 2003). As Pfeffer (1981) argues that internal board
members are more loyal to management, we suppose that independent directors are less
subject to influence by CEO.
H8: Top executive compensation is negatively associated with the percentage of independent
directors sitting on the board.
Finally, empirical evidence has been given that agency problems are higher when the CEO is
also the board chair (Yermack, 1996). Concerning the board structure, in the French system,
companies are allowed either to have a “classical” board of administrators, or to have a
Conseil de Surveillance (composed of non –executive directors) and a Directoire (a body of
executive directors). In the first case, the chairman of the board can be the Président
Directeur Général (PDG, chairman and managing director) or only the Président du Conseil
d’Administration (chairman of the board), and delegate the executive power to a Directeur
Général. We hypothesized that a chairman combining both functions would have much more
power within the board of directors, and then have more influence on compensation setting.
8
H9: Top executive compensation is negatively associated with the dissociation of the
chairman of the board and the managing director roles.
3. Research design
3.1.
Sample
The initial population of our sample is the SBF 120 index’s French listed firms over a threeyear period (2002-2004)1. The compensation and governance data were collected from annual
reports of the SBF 120 index firms. We obtained compensation and governance data of 110
companies and gathered financial data (size, performance) from Thomson Financial database.
Due to data limitations our sample consists of 268 observations over a three-year (2002-2004)
period, which represents 99 different French listed firms.
Table 1 describes the economic and compensation characteristics of our sample. It is
composed of large firms (mean sales of 8757 million euros), with relatively low ROA (mean
of 2.761).
Insert Table 1 here
Table 2 describes the governance characteristics of our sample. Almost 85% of our sample
firms have an audit committee (87.31%) and a compensation committee (84.70 %), whereas
two-thirds of them have a nomination committee and only 5.22 % a governance committee.
The repartition between the two governance modes are one-third for the dual structure and
two-thirds for the basic mode of SA (Société Anonyme), and half (51.87%) of the CEO are
chairman and managing director of the firm.
Insert Table 2 here
1
Since 2002, French publicly listed companies were asked to report CEO and board of directors’ compensation
(NRE law, 15 May 2001).
9
Finally our sample is composed of firms operating in a variety of different industries. It
includes an industrial classification with 10 different standards (Dow Jones market sector),
whith some concentration in the consumer cyclical (26.7%), financials (15.6%), industrial
(20%) and technology (14.5%) industries.
Insert Table 3 here
3.2.
Compensations models
We test three empirical models in order to explain the level of CEO compensations in France.
First, we study the determinants of the fix part of CEO compensation, i.e. the individual’s
salary for year t (CEO_SALt). Second, we assess the determinants of the variable part of CEO
compensation, i.e. the annual bonus paid in year t for performance in year t-1 (CEO_bonust).
And finally, we test a model where the independent variable is the total CEO compensation,
i.e. the sum of salary and annual bonus (CEO_TOTt). The empirical models are the following:
[1] CEO _ SALi , t = α 0 + α1lagSalesi ,t + α 2lagROAi ,t + α 3lagRETi ,t + α 4 Betai ,t
+ α 5COMP _ COM i ,t + α 6 AUD _ COM i ,t + α 7 NOM _ COM i ,t
+ α 8GOV _ COM i ,t + α 9CAi ,t + α10 PDGi ,t + α11 INDi ,t + ∑ YRi ,t + ∑ Indusi ,t + ε i ,t
[2] CEO _ bonusi , t = β 0 + β1lagSalesi ,t + β 2lagROAi ,t + β 3 lagRETi ,t + β 4 Betai ,t
+ β 5COMP _ COM i ,t + β 6 AUD _ COM i ,t + β 7 NOM _ COM i ,t
+ β8GOV _ COM i ,t + β 9CAi ,t + β10 PDGi ,t + β11 INDi ,t + ∑ YRi ,t + ∑ Indusi ,t +ε i ,t
[3] CEO _ TOTi ,t = γ 0 + γ 1lagSalesi ,t + γ 2lagROAi ,t + γ 3lagRETi ,t + γ 4 Betai ,t
+ γ 5COMP _ COM i ,t + γ 6 AUD _ COM i ,t + γ 7 NOM _ COM i ,t
+ γ 8GOV _ COM i ,t + γ 9CAi ,t + γ 10 PDGi ,t + γ 11 INDi ,t + ∑ YRi ,t + ∑ Indusi ,t +ε i ,t
With,
-
CEO_SALt is the individual salary for year t of firm i CEO.
10
-
CEO_bonust is the annual bonus paid in year t of firm i CEO, for performance in year
t-1.
-
CEO_TOTt is the sum of salary and annual bonus paid in year t of firm i CEO.
-
lagSalesi,t is the sales (in million euros) at the end of year t-1 for firm i.
-
LagROAi,t is the return of asset for year t-1 of firm i.
-
LagRETi,t is the market return for year t-1 of firm i.
-
Betai,t is the CAPM specific risk of firm i for year t.
-
COMP_COMi,t is a dichotomous variable equals 1 if the firm i has a compensation
committee in year t, and 0 otherwise.
-
AUD_COMi,t is a dichotomous variable equals 1 if the firm i has an audit committee in
year t, and 0 otherwise.
-
NOM_COMi,t is a dichotomous variable equals 1 if the firm i has a nomination
committee in year t, and 0 otherwise.
-
GOV_COMi,t is a dichotomous variable equals 1 if the firm i has a governance
committee in year t, and 0 otherwise.
-
CAi,t is a dichotomous variable equals 1 if the governance form of the firm i is the
basic one, and 0 otherwise.
-
PDGi,t is a dichotomous variable equals 1 if the CEO is the chairman and the
managing director of the firm i, and 0 otherwise.
-
INDi,t is the percentage of independent directors composing the board of directors of
firm i in year t.
-
YRi,t is a time indicator variable that equals 1 if an observation is from fiscal year t,
and 0 otherwise.
-
Indusi,t are dummy variables (CYC, ENE, FIN, HCR, IDU, NCY, TEC, TLS, UTI)
coded 1 if the firm belongs respectively to the Dow Jones market sectors consumer
11
cyclical, energy, financials, healthcare, industrial, consumer non-cyclical, technology,
telecommunication or utilities, and 0 otherwise.
4. Empirical results
Results of models (1) (2) and (3) for the pooled sample are presented below (table 4). VIFs
calculation allows us to ensure that no multicolinearity problem affects our results. No
variable of our models (see Table 6, Appendix 1) have a VIF greater than 4, which is far from
the critical value of 10 (Netter et al., 1989).
Insert Table 4 Here
This table presents the regression results for the pooled data (2002-2004) on our three
measures of CEO compensations: the individual salary, the annual bonus paid and the total
compensation. As hypothesized in H1, the size (measured by the Sales of firm i in year t-1) is
strongly and positively related to the three dimensions of CEO compensation. This is
consistent with what has been found in other studies (see Benito and Conyon (1999) for UK,
Firth et al. (1996) for Norway, Elston and Goldberg (2003) for Germany).
Our results on performance are mixed. We tested two different variables as a proxy for
performance: the ROA, which measures the performance of a firm with accounting data, and
the market return (RET), which measures performance from a financial market point of view.
As both variables appear to be not significantly correlated2, it seemed useful to test them in
the same model. While market returns has, as hypothesized in H2, a significant positive
relation with CEO bonus and a weaker relation with CEO total compensation, the ROA only
2
See appendix 1 for the correlation matrix.
12
presents a negative significant relation with CEO fixed compensation and no significant
relation with CEO bonus or CEO total compensation. This result suggests that performance
measured with accounting data is not relevant for firms or compensation committees in
determining CEO compensation.
Also contrary to our hypothesis H3, risk, measured with Beta, is significantly negatively
related with CEO bonus and rather weakly and still negatively with CEO total compensation.
Governance variables show globally more consistent results: the audit committee has a
significant and positive relation with CEO fixed and total compensation, and no relation with
CEO bonus. On the contrary the compensation committee show a negative and significant
association with CEO fixed and total compensation, and no relation with CEO bonus.
Nomination and Governance committees have no relation with any dimension of CEO
compensation. Concerning the structure of the board, it appears that when the CEO is
chairman of the board and managing director, his fixed compensation is diminished
(significant negative relation with CEO_SAL), but his bonus and total compensation have no
relation with his status. Finally, the percentage of independent directors on the board has a
positive and significant relation with CEO fixed and total compensation.
5. Conclusion
Executive compensation has recently become an important subject of debate in non AngloSaxon countries. Yet, there is little knowledge about it in France. The changes in the stock
exchange regulation in 2001 have provided access to the compensation of top-managers
making this study timely, especially in such a low transparent environment. The results of the
13
paper show that overall the size of the firm seems to have a major impact on executive
compensation in France. The pay-performance association is less straightforward as it
depends on the performance variable used. The risk of the company affects negatively the
compensation package. Lastly, the presence of compensation committee is negatively
associated with CEO compensation, whereas other governance variables present mixed
results. Overall, one may conclude that the complexity of the firm’s operation, proxied with
the size of the company, has a positive impact on top executives’ compensation, mitigated by
the presence of a compensation committee. On the whole, fixed and total compensation are
notably more correlated with our governance variables than CEO bonus, which appears not to
be really impacted by those variables.
14
References
Aggarwal R. and Samwick A.A. (1999), “The Other Side of the Tradeoff: The Impact of
Risk on Executive Compensation,” Journal of Political Economy 107, (February), pp. 65105.
Andjelkovic, A., Boyle, G. And McNoe, W. (2002), “Public Disclosure of Executive
Compensation: Do Shareholders Need to Know?”, Pacific-Basin Finance Journal 10, pp.
97–117.
Alcouffe, A. and Alcouffe, C. (2000), “Executive Compensation-setting Practices in France”,
Long Range Planning, 33, pp. 527-543.
Baker G., P. Jensen, Michael C. and Murphy K.J. (1988), “Compensation and Incentives:
Practice vs. Theory”, The Journal of Finance, 43(3), pp. 593–616.
Baumol, W.J. (1967), Business Behavior, Value, and Growth, rev. ed., New York.
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Companies”, Journal of Management & Governance, 3(2).
Conyon M., Gregg P. and Machin S. (1995), “Taking care of business: Executive
compensation in the United Kingdom”, the Economic Journal, 105, pp. 704-714
Core J.E., Holthausen R.W., and Larcker D.F. (1999), “Corporate Governance, Chief
Executive Officer Compensation, and Firm Performance”, Journal of Financial
Economics. 51, pp. 371–406.
Cosh A. (1975), “The Remuneration of Chief Executives in the United Kingdom”, Economic
Journal, 85, pp. 75-95.
Djelic, M.L. and Zarlowski, P. (2005), “Firms and governance in France: Historical
perspective and recent trends”, Sociologie du Travail, 47, pp. 451-469.
Elston, J. A., and Goldberg, L. G. (2003), “Executive compensation and agency costs in
germany”, Journal of Banking and Finance, 27, pp. 1391-1410.
Fama E.F. and Jensen M.C. (1983), “Separation of Ownership and Control.”, Journal of
Law and Economics, 26(2), pp. 301-325.
Firth, M., Lohne, J. C., Ropstad R., and Sjo J. (1996), “The remuneration of CEOs and
Corporate Financial Performance in Norway”, Managerial and Decision Economics,
17(3), pp. 291-301.
Gray S.R. and Cannella A. Jr. (1997), “The Role of Risk in Executive Compensation”,
Journal of Management, 23(4), pp. 517-540.
15
Mueller D.C., and S.L. Yun (1997), “Managerial Discretion and Managerial Compensation”,
International Journal of Industrial Organization, 15, pp. 441-454.
Netter, J., Wasserman, W. and Kutner, M.H. (1989), Applied regression models,
Homewood, IL: Richard D. Irwin.
Pfeffer, J., (1981). Power in Organizations. Pitman, Boston, MA.
Yermack, D. (1996), “Higher market valuation for firms with a small board of directors”,
Journal of Financial Economics, 40, pp. 185-211
Williamson O. (1967), “Hierchical Control and Optimum Firm Size”, Journal of Political
Economy, 75, pp. 123-138.
16
Table 1 – Economic and compensation characteristics
Variable
N
Mean
S.D.
lagSales
lagROA
lagRET
Beta
CEO_SAL
CEO_bonus
CEO_tot
IND
268
268
268
265
268
268
268
268
8757.659
2.761
-7.008
1.327
732.1399
420.7363
1152.876
34.920
Min
<
Quantiles
>
0.25
Mdn
0.75
Max
2398.755
2.567
-7.148
1.223
629.5935
145.9335
913.92
36.364
11815.000
4.941
15.948
1.997
980
667.5
1609.985
53.333
54869.000
17.513
97.078
3.307
3390.981
3472.594
4380.574
100.000
12489.230 43.321 638.450
4.658 -13.613
0.496
36.291 -90.995 -31.488
0.832
0.006
0.614
515.6137 57.917 327.9215
592.3738
0
0
887.9999 57.917
446.12
25.273
0.000
10.317
LagSales is the sales at the end of year t-1 for firm i; lagROA is the return of asset for year t-1 of firm i; lagRET is
market return for year t-1 of firm i; Beta is the CAPM specific risk of firm i for year t; CEO_SAL is the individual
salary for year t of firm i CEO; CEO_bonus is the annual bonus paid in year t of firm i CEO, for performance in
year t-1; CEO_TOT is the sum of salary and annual bonus paid in year t of firm i CEO; IND is the percentage of
independent directors composing the board of directors of firm i in year t.
Table 2 – Governance characteristics
Variable
N
Percentage
Cum.
Total number of observations
268
100
0
1
0
1
0
1
0
1
0
1
0
1
34
234
41
227
92
176
254
14
96
172
129
139
12.69
87.31
15.3
84.7
34.33
65.67
94.78
5.22
35.82
64.18
48.13
51.87
AUD_COM
COMP_COM
NOM_COM
GOV_COM
CA
PDG
12.69
100
15.3
100
34.33
100
94.78
100
35.82
100
48.13
100
AUD_COM is a dummy variable equals 1 if the firm i has an audit committee in year t, and 0 otherwise;
COMP_COM is a dummy variable equals 1 if the firm i has a compensation committee in year t, and 0 otherwise;
NOM_COM is a dummy variable equals 1 if the firm i has a nomination committee in year t, and 0 otherwise;
GOV_COM is a dummy variable equals 1 if the firm i has a governance committee in year t, and 0 otherwise; CA
is a dummy variable equals 1 if the governance form of the firm i is the basic one, 0 otherwise; PDG is a dummy
variable equals 1 if the CEO is the chairman and the managing director of the firm, and 0 otherwise.
17
Table 3 – Industry classification
Dow Jones Market Sectors
BSC
CYC
ENE
FIN
HCR
IDU
NCY
TEC
TLS
UTI
Total
Label
Basic Material
Consumer Cyclical
Energy
Financials
Healthcare
Industrial
Consumer, Non-cyclical
Technology
Telecommunications
Utilities
Total
N
Percent
9
72
6
42
8
55
26
39
2
9
268
3.36
26.87
2.24
15.67
2.99
20.52
9.7
14.55
0.75
3.36
100
Cum.
3.36
30.22
32.46
48.13
51.12
71.64
81.34
95.9
96.64
100
CYC, ENE, FIN, HCR, IDU, NCY, TEC, TLS and UTI are indicator variables coded 1 if the firm belongs respectively
to the consumer cyclical, energy, financials, healthcare, industrial, consumer non cyclical, technology, telecommunications or utilities Dow Jones Market Sectors.
18
Table 4 - Pooled regressions
(1)
CEO_SAL
0.013
(0.000)
-15.737
(0.022)
0.723
(0.381)
-0.020
(1.000)
887.108
(0.000)
-798.940
(0.000)
29.043
(0.684)
-17.553
(0.874)
134.102
(0.133)
-184.229
(0.023)
3.779
(0.001)
Included
Included
(2)
CEO_bonus
0.018
(0.000)
5.577
(0.416)
2.010
(0.019)
-84.685
(0.059)
57.020
(0.529)
124.535
(0.126)
13.874
(0.849)
-88.313
(0.571)
57.618
(0.547)
76.131
(0.428)
0.900
(0.419)
Included
Included
(3)
CEO_TOT
0.033
(0.000)
-12.548
(0.199)
2.858
(0.061)
-123.467
(0.092)
965.075
(0.000)
-643.921
(0.006)
-4.071
(0.975)
-66.536
(0.718)
161.695
(0.297)
-48.273
(0.752)
4.321
(0.010)
Included
Included
403.885
(0.001)
Number of observations
265
R-square
0.468
P-values in parentheses, errors are White-corrected
64.896
(0.680)
266
0.342
521.725
(0.021)
265
0.455
lagSales
lagROA
lagRET
Beta
AUD_COM
COMP_COM
NOM_COM
GOV_COM
CA
PDG
IND
Time fixed effects
Industry fixed effects
Constant
CEO_SAL is the individual salary for year t of firm i CEO; CEO_bonus is the annual bonus paid in year t of firm i
CEO, for performance in year t-1; CEO_TOT is the sum of salary and annual bonus paid in year t of firm i CEO;
lagSales is the sales at the end of year t-1 for firm i; lagROA is the return of asset for year t-1 of firm i; lagRET is
market return for year t-1 of firm i; Beta is the CAPM specific risk of firm i for year t; AUD_COM is a dummy
variable equals 1 if the firm i has an audit committee in year t, and 0 otherwise; COMP_COM is a dummy variable
equals 1 if the firm i has a compensation committee in year t, and 0 otherwise; NOM_COM is a dummy variable
equals 1 if the firm i has a nomination committee in year t, and 0 otherwise; GOV_COM is a dummy variable
equals 1 if the firm i has a governance committee in year t, and 0 otherwise; CA is a dummy variable equals 1 if the
governance form of the firm i is the basic one, 0 otherwise; PDG is a dummy variable equals 1 if the CEO is the
chairman and the managing director of the firm, and 0 otherwise.IND is the percentage of independent directors
composing the board of directors of firm i in year t.
19
Appendix 1
Table 5 – Correlation matrix
CEO_TOT
CEO_SAL
CEO_BONUS
lagSales
lagROA
lagRET
CEO_TOT
1.000
CEO_SAL
0.9297*
(0.000)
1.000
CEO_BONUS
0.5151*
(0.000)
0.1631*
(0.042)
1.000
lagSales
0.3274*
(0.000)
0.2396*
(0.000)
0.3194*
(0.000)
1.000
lagROA
-0.1939*
(0.006)
-0.2401*
(0.000)
0.0393
(0.4929)
-0.1322*
(0.0205)
1.000
lagRET
0.0185
(0.7495)
-0.0332
(0.5679)
0.1275*
(0.0275)
-0.0394
(0.4969)
0.0948
(0.1018)
1.000
Beta
-0.1004*
(0.0816)
-0.0224
(0.6980)
-0.2169*
(0.0001)
-0.0469
(0.4165)
-0.2180*
(0.001)
-0.1419*
(0.0147)
Beta
1.000
. Pearson correlation
(.) Sig. (2-tailed)
*Correlation is significant at the 0.10 level (2-tailed)
CEO_SAL is the individual salary for year t of firm i CEO; CEO_bonus is the annual bonus paid in year t of firm i
CEO, for performance in year t-1; CEO_TOT is the sum of salary and annual bonus paid in year t of firm i CEO;
lagSales is the sales at the end of year t-1 for firm i; lagROA is the return of asset for year t-1 of firm i; lagRET is
market return for year t-1 of firm i; Beta is the CAPM specific risk of firm i for year t.
Table 6 – Variance Inflation Factors
(1)
CEO_SAL
Variable
COMP_COM
CA
AUD_COM
PDG
Beta
NOM_COM
lagRET
lagSales
lagROA
IND
GOV_COM
Mean VIF
VIF
3.37
3.22
3.21
2.99
1.93
1.84
1.71
1.44
1.32
1.23
1.07
2.94
1/VIF
0.296777
0.310738
0.311527
0.334293
0.518764
0.542025
0.584713
0.692464
0.759232
0.815557
0.931172
(2)
CEO_bonus
VIF
3.24
3.04
3.01
2.88
1.91
1.84
1.67
1.44
1.31
1.24
1.08
2.91
1/VIF
0.308934
0.329298
0.332474
0.347226
0.524746
0.544522
0.600196
0.692911
0.761491
0.805829
0.927695
(3)
CEO_TOT
VIF
3.37
3.22
3.21
2.99
1.93
1.84
1.71
1.44
1.32
1.23
1.07
2.94
1/VIF
0.296777
0.310738
0.311527
0.334293
0.518764
0.542025
0.584713
0.692464
0.759232
0.815557
0.931172
20
ESSEC
CENTRE
DE RECHERCHE
LISTE DES DOCUMENTS DE RECHERCHE DU CENTRE DE RECHERCHE DE L’ESSEC
(Pour se procurer ces documents, s’adresser au CENTRE DE RECHERCHE DE L’ESSEC)
LISTE OF ESSEC RESEARCH CENTER WORKING PAPERS
(Contact the ESSEC RESEARCH CENTER for information on how to obtain copies of these papers)
[email protected]
2004
04001
BESANCENOT Damien, VRANCEANU Radu
Excessive Liability Dollarization in a Simple Signaling Model
04002
ALFANDARI Laurent
Choice Rules Size Constraints for Multiple Criteria Decision Making
04003
BOURGUIGNON Annick, JENKINS Alan
Management Accounting Change and the Construction of Coherence in Organisations: a Case Study
04004
CHARLETY Patricia, FAGART Marie-Cécile, SOUAM Saïd
Real Market Concentration through Partial Acquisitions
04005
CHOFFRAY Jean-Marie
La révolution Internet
04006
BARONI Michel, BARTHELEMY Fabrice, MOKRANE Mahdi
The Paris Residential Market: Driving Factors and Market Behaviour 1973-2001
04007
BARONI Michel, BARTHELEMY Fabrice, MOKRANE Mahdi
Physical Real Estate: A Paris Repeat Sales Residential Index
04008
BESANCENOT Damien, VRANCEANU Radu
The Information Limit to Honest Managerial Behavior
04009
BIZET Bernard
Public Property Privatization in France
04010
BIZET Bernard
Real Estate Taxation and Local Tax Policies in France
04011
CONTENSOU François
Legal Profit-Sharing: Shifting the Tax Burden in a Dual Economy
04012
CHAU Minh, CONTENSOU François
Profit-Sharing as Tax Saving and Incentive Device
04013
REZZOUK Med
Cartels globaux, riposte américaine. L’ère Empagran ?
2005
05001
VRANCEANU Radu
The Ethical Dimension of Economic Choices
05002
BARONI Michel, BARTHELEMY Fabrice, MOKRANE Mahdi
A PCA Factor Repeat Sales Index (1973-2001) to Forecast Apartment Prices in Paris (France)
05003
ALFANDARI Laurent
Improved Approximation of the General Soft-Capacitated Facility Location Problem
05004
JENKINS Alan
Performance Appraisal Research: A Critical Review of Work on “the Social Context and Politics of
Appraisal”
05005
BESANCENOT Damien, VRANCEANU Radu
Socially Efficient Managerial Dishonesty
05006
BOARI Mircea
Biology & Political Science. Foundational Issues of Political Biology
05007
BIBARD Laurent
Biologie et politique
05008
BESANCENOT Damien, VRANCEANU Radu
Le financement public du secteur de la défense, une source d'inefficacité ?
2006
06001
CAZAVAN-JENY Anne, JEANJEAN Thomas
Levels of Voluntary Disclosure in IPO prospectuses: An Empirical Analysis
06002
BARONI Michel, BARTHELEMY Fabrice, MOKRANE Mahdi
Monte Carlo Simulations versus DCF in Real Estate Portfolio Valuation
06003
BESANCENOT Damien, VRANCEANU Radu
Can Incentives for Research Harm Research? A Business Schools Tale
06004
FOURCANS André, VRANCEANU Radu
Is the ECB so Special? A Qualitative and Quantitative Analysis
06005
NAIDITCH Claire, VRANCEANU Radu
Transferts des migrants et offre de travail dans un modèle de signalisation
06006
MOTTIS Nicolas
Bologna: Far from a Model, Just a Process for a While…
06007
LAMBERT Brice
Ambiance Factors, Emotions and Web User Behavior: A Model Integrating and Affective and Symbolical
Approach
06008
BATISTA Catia, POTIN Jacques
Stages of Diversification and Capital Accumulation in an Heckscher-Ohlin World, 1975-1995
06009
TARONDEAU Jean-Claude
Strategy and Organization Improving Organizational Learning
06010
TIXIER Daniel
Teaching Management of Market Driven Business Units Using Internet Based Business Games
06011
COEURDACIER Nicolas
Do Trade Costs in Goods Market Lead to Home Bias in Equities?
06012
AVIAT Antonin, COEURDACIER Nicolas
The Geography of Trade in Goods and Asset Holdings
06013
COEURDACIER Nicolas, GUIBAUD Stéphane
International Portfolio Diversification Is Better Than You Think
06014
COEURDACIER Nicolas, GUIBAUD Stéphane
A Dynamic Equilibrium Model of Imperfectly Integrated Financial Markets
06015
DUAN Jin-Chuan, FULOP Andras
Estimating the Structural Credit Risk Model When Equity Prices Are Contaminated by Trading Noises
06016
FULOP Andras
Feedback Effects of Rating Downgrades
06017
LESCOURRET Laurence, ROBERT Christian Y.
Preferencing, Internalization and Inventory Position
06018
BOURGUIGNON Annick, SAULPIC Olivier, ZARLOWSKI Philippe
Management Accounting Change in the Public Sector: A French Case Study and a New Institutionalist
Perspective
06019
de BEAUFORT Viviane
One Share – One Vote, le nouveau Saint Graal ?
06020
COEURDACIER Nicolas, MARTIN Philippe
The Geography of Asset Trade and the Euro: Insiders and Outsiders
06021
BESANCENOT Damien, HUYNH Kim, VRANCEANU Radu
The "Read or Write" Dilemma in Academic Production: A European Perspective
2007
07001
NAIDITCH Claire, VRANCEANU Radu
International Remittances and Residents' Labour Supply in a Signaling Model
07002
VIENS G., LEVESQUE K., CHAHWAKILIAN P., EL HASNAOUI A., GAUDILLAT A., NICOL G.,
CROUZIER C.
Évolution comparée de la consommation de médicaments dans 5 pays européens entre 2000 et 2004 :
analyse de 7 classes pharmaco-thérapeutiques
07003
de BEAUFORT Viviane
La création d'entreprise au féminin dans le monde occidental
07004
BOARI Mircea
Rationalizing the Irrational. The Principle of Relative Maximization from Sociobiology to Economics and
Its Implications for Ethics
07005
BIBARD Laurent
Sexualités et mondialisation
07006
VRANCEANU Radu
The Moral Layer of Contemporary Economics: A Virtue Ethics Perspective
07007
LORINO Philippe
Stylistic Creativity in the Utilization of Management Tools
07008
BARONI Michel, BARTHELEMY Fabrice, MOKRANE Mahdi
Optimal Holding Period for a Real Estate Portfolio
07009
de BEAUFORT Viviane
One Share - One Vote, the New Holy Graal?
07010
DEMEESTERE René
L'analyse des coûts : public ou privé ?
07011
TIXIER Maud
Appreciation of the Sustainability of the Tourism Industry in Cyprus
07012
LORINO Philippe
Competence-based Competence Management: a Pragmatic and Interpretive Approach. The Case of a
Telecommunications Company
07013
LORINO Philippe
Process Based Management and the Central Role of Dialogical Collective Activity in Organizational
Learning. The Case of Work Safety in the Building Industry
07014
LORINO Philippe
The Instrumental Genesis of Collective Activity. The Case of an ERP Implementation in a Large
Electricity Producer
07015
LORINO Philippe, GEHRKE Ingmar
Coupling Performance Measurement and Collective Activity: The Semiotic Function of Management
Systems. A Case Study
07016
SALLEZ Alain
Urbaphobie et désir d'urbain, au péril de la ville
07017
de CARLO Laurence
The Classroom as a Potential Space - Teaching Negotiation through Paradox
07019
ESPOSITO VINZI Vincenzo
Capturing and Treating Unobserved Heterogeneity by Response Based Segmentation in PLS Path
Modeling. A Comparison of Alternative Methods by Computational Experiments
07020
CHEVILLON Guillaume, Christine RIFFLART
Physical Market Determinants of the Price of Crude Oil and the Market Premium
07021
CHEVILLON Guillaume
Inference in the Presence of Stochastic and Deterministic Trends
07023
COLSON Aurélien
The Ambassador, between Light and Shade. The Emergence of Secrecy as the Norm of International
Negotiation
07024
GOMEZ Marie-Léandre
A Bourdieusian Perspective on Strategizing
07025
BESANCENOT Damien, VRANCEANU Radu
Multiple Equilibria in a Firing Game with Impartial Justice
07026
BARONI Michel, BARTHELEMY Fabrice, MOKRANE Madhi
Is It Possible to Construct Derivatives for the Paris Residential Market?
2008
08001
BATISTA Catia, POTIN Jacques
International Specialization and the Return to Capital, 1976-2000
08002
BESANCENOT Damien, FARIA Joan Ricardo, VRANCEANU Radu
Why Business Schools do so much Research: a Signaling Explanation
08003
De BEAUFORT Viviane
D’un effet vertueux de l’art. 116 de la loi NRE en matière de RSE ? La problématique est posée à
échelle de l’Union européenne
08004
MATHE Hervé
Greater Space means more Service: Leveraging the Innovative Power of Architecture and Design
08005
MATHE Hervé
Leading in Service Innovation: Three perspectives on Service Value delivery in a European Context
08006
ROMANIUK Katarzyna, VRANCEANU Radu
Asset Prices and Asymmetries in the Fed’s Interest Rate Rule: A Financial Approach
08007
MOTTIS Nicolas, WALTON Peter
Measuring Research Output across Borders - A Comment
08008
NAPPI-CHOULET Ingrid, MAURY Tristan-Pierre
A Spatiotemporal Autoregressive Price index for the Paris Office Property Market
08009
METIU Anca, OBODARU Otilia
Women’s professional Identity Formation in the Free/Open Source Software Community
08010
SIBIEUDE Thierry, VIDAL Rodolphe
Le programme « Une grande école : pourquoi pas moi ? ® ». D’une action de responsabilité soc_iétale
de l’ESSEC à la responsabilité sociétale des grandes écoles françaises
08012
FOURCANS André, VRANCEANU Radu
Money in the Inflation Equation: the Euro Area Evidence
08013
CAZAVAN-JENY Anne, JEANJEAN Thomas
Supply and Demand for European Accounting Research. Evidence from EAA Congresses
08014
FAYARD Anne-Laure and METIU Anca
Beyond Orality and Literacy: Letters and Organizational Communication
DR 08015
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