TY - JOUR
T1 - Does social capital mitigate agency problems? Evidence from Chief Executive Officer (CEO) compensation
AU - Hoi, Chun Keung(Stan)
AU - Wu, Qiang
AU - Zhang, Hao
N1 - Funding Information:
The authors are grateful for insightful comments from an anonymous referee and discussions with Anzhela Knyazeva, Jeremy Ko, Zhong Ma, John Ritter, and research workshop participants at Rochester Institute of Technology, University of Groningen, Beijing Jiao Tong University, and the U.S. Securities and Exchange Commission. Hoi and Zhang thank the Saunders College of Business at RIT for research support through Zutes Faculty Fellowships.
Publisher Copyright:
© 2019
PY - 2019/8
Y1 - 2019/8
N2 - 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.
AB - 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.
KW - Backdating
KW - Executive compensation
KW - Opportunistic timing
KW - Social capital
KW - Social norms
UR - http://www.scopus.com/inward/record.url?scp=85061667874&partnerID=8YFLogxK
U2 - 10.1016/j.jfineco.2019.02.009
DO - 10.1016/j.jfineco.2019.02.009
M3 - Journal article
AN - SCOPUS:85061667874
SN - 0304-405X
VL - 133
SP - 498
EP - 519
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 2
ER -