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

Chun Keung(Stan) Hoi, Qiang Wu, Hao Zhang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

28 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)498-519
Number of pages22
JournalJournal of Financial Economics
Volume133
Issue number2
DOIs
Publication statusPublished - Aug 2019
Externally publishedYes

Keywords

  • Backdating
  • Executive compensation
  • Opportunistic timing
  • Social capital
  • Social norms

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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