Large CEO Bonuses during the 2008-2009 Economic Crisis

Large CEO Bonuses during the 2008-2009 Economic Crisis -...

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Investor Reaction to Large CEO Bonuses During the 2008-2009 Economic Crisis Dov Fischer, Ph.D. and Joseph Szendi. Ph.D. Department of Accounting College of Business and Public Administration Kean University 2010 Research Day April 7, 2010
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Kean University Research Day Fis 2 Research Question Do stock prices react negatively to large CEO bonuses? Independent Variable: Large CEO bonuses Top decile (10%) of firms ranked by CEO bonus Dependent Variable: Stock price changes Two-day returns beginning with the proxy- statement release date (see below).
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Kean University Research Day Fis 3 Prior Literature on Executive Compensation Seminal paper by Jensen and Murphy ( Journal of Political Economy , 1990) estimates that CEO wealth increases by $3.25 for every $1,000 change in shareholder wealth . Change in CEO wealth refers to expected changes in current and future salary, bonus, stock, and stock options Change in shareholder wealth refers to increase in the firm’s stock market value plus dividends paid
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Kean University Research Day Fis 4 Motivation for our study Jensen and Murphy single out bonuses for criticism. They are not as effective in terms of incentives as stocks and stock options. On the other hand, they are not as transparent as salary. We therefore specifically focus on investor reaction to bonuses.
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Kean University Research Day Fis 5 Prior Literature on CEO Bonuses Jackson, Lopez, and Reitenga ( Journal of Accounting and Public Policy , 2008) is another recent study that focuses specifically on CEO bonus. They examine the relationship between CEO bonuses and accounting fundamentals and stock price performance in the previous year. Accounting fundamentals (all divided by total assets) examined by JLR: Net income Operating cash flows Sales
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Kean University Research Day Fis 6 Recap of Research Question Do stock prices react negatively to large CEO bonuses? Independent Variable: Large CEO bonuses Top decile (10%) of firms ranked by CEO bonus Dependent Variable: Stock price changes Two-day returns beginning with the proxy- statement release date (see below).
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Kean University Research Day Fis 7 Measurement Period - Announcement of 2008 bonuses
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Large CEO Bonuses during the 2008-2009 Economic Crisis -...

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