11-21 - high correlations are observed between finn size...

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high correlations are observed between finn size and number of executive directors on the board (0.35), finn size and debt-to-assets ratio (0.26), market-to-book (or ROA) and managerial compensation. There are negative correlations between the number of directors on the board and ownership levels (from - 0.13 to - 0.21), and between the presence of an audit committee and managerial compensation or ownership. I I 4. Ownership concentration and managerial cash emoluments In this section we report our multivariate analysis of the relationship between managerial ownership and cash compensation (Section 4.1), and discuss the impact of family control on the results (Section 4.2). We also test whether our results may be attributed to compensation potentially serving as a proxy for managerial effort (Section 4.3). Finally, we analyze the relationship between ownership structure, cash compensation, and dividend income (Section 4.4). 4.1. CEO and Chairman cash emoluments We report results of regressions of CEO and Chainnan cash emoluments on CEO and Chainnan ownership concentration after controlling for finn perfonnance and corporate governance characteristics. Table 6 reports results for a linear specification (as a benchmark) and a quadratic specification in CEO and Chainnan ownership. The results for the linear specification are not statistically significant, and the results for the quadratic specification indicate that the relationship is non-linear. The coefficients of the linear ownership tenn are positive, and those of the squared tenn negative (statistically significant at the 1 % level for both the CEO and Chainnan cash emoluments). _ For our main analysis we rely on a piecewise linear specification, reported in Table 7, as more infonnative. We provide results for the whole sample but we also rank finns based on stock market capitalization, divide the sample in three equal groups, and report results for the sub-samples of finns with the smallest and the largest stock market capitalization (results for the remaining finns fall between the two extremes, and are no} reported for brevity).~'
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For the whole sample, there is a positive relationship between ownership and cash emoluments for ownership of up to 35%, although the result is statistically significant only for Chairman ownership in the zero to 10% range. For ownership over 35% there is a negative and highly statistically significant relationship between ownership and compensation for both CEO and Chairman. The analysis of the sub-samples supports the conjecture that the positive relationship between managerial ownership and managerial cash compensation may be the result of agency costs or managerial entrenchment. We observe that, in small firms, this positive relationship is statistically significant for higher levels of ownership, namely for managerial ownership of up to 35%. Small firms are likely to be characterized by more information asymmetry between owners-managers and outside investors, since they are followed by fewer analysts compared to large firms. In contrast, in
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11-21 - high correlations are observed between finn size...

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