Information in unexpected bonus cuts: Firm performance and CEO firings

IF 2.1 2区经济学 Q2 BUSINESS, FINANCE

Journal of Empirical Finance Pub Date : 2024-01-22 DOI:10.1016/j.jempfin.2024.101466

William M. Cready , Zhonglan Dai , Guang Ma , Vikram Nanda

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引用次数: 0

Abstract

An extensive literature finds that CEO compensation, especially bonus pay, exhibits downward rigidity. This is despite corporate boards usually retaining the discretion to deviate from their stated bonus formulae. We conjecture that the infrequent occasions in which there is an unexpected bonus cut, the board likely possesses unfavorable private information about the firm's long-term prospects and the CEO's ability. We hypothesize, therefore, that unexpected bonus cuts will be predictive of the company's future operating performance as well as forced CEO turnovers. We first validate our private information premise by showing that stock market reactions to CEO firings or earnings announcements are muted for firms experiencing unexpected bonus cuts but not for those without cuts. Consistent with these predictions, we find that unexpected bonus cuts are robust predictors of subsequent underperformance (ROE) and lower firm valuation (Tobin's Q) as well as CEO firings. Further, we examine the impact of Regulation S-K (2006) and show that predictive power becomes stronger post Reg. S-K, along with the disappearance of downward rigidity. This suggests that compensation transparency makes it harder for boards to deviate from stated bonus formulae and, if they do, the deviations are more informative.

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意外削减奖金中的信息：公司业绩与首席执行官解雇

大量文献发现，首席执行官的薪酬，尤其是奖金薪酬，呈现出向下的刚性。尽管公司董事会通常拥有偏离既定奖金计算公式的自由裁量权，但情况依然如此。我们推测，在意外削减奖金的极少数情况下，董事会很可能掌握了关于公司长期前景和首席执行官能力的不利私人信息。因此，我们假设，意外削减奖金将预测公司未来的经营业绩以及首席执行官的被迫离职。我们首先验证了我们的私人信息假设，结果表明，对于经历过意外削减奖金的公司来说，股票市场对首席执行官被解雇或盈利公告的反应是平淡的，而对于没有经历过削减奖金的公司来说则不然。与这些预测相一致，我们发现意外削减奖金是后续业绩不佳（ROE）和公司估值降低（托宾 Q 值）以及首席执行官被解雇的有力预测因素。此外，我们还研究了《S-K 法规》（2006 年）的影响，结果表明，在《S-K 法规》颁布后，随着向下刚性的消失，预测能力变得更强。这表明，薪酬透明化使董事会更难偏离既定的奖金计算公式，即使偏离，偏离的信息量也更大。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Journal of Empirical Finance Multiple-

CiteScore

3.40

自引率

3.80%

发文量

期刊介绍： The Journal of Empirical Finance is a financial economics journal whose aim is to publish high quality articles in empirical finance. Empirical finance is interpreted broadly to include any type of empirical work in financial economics, financial econometrics, and also theoretical work with clear empirical implications, even when there is no empirical analysis. The Journal welcomes articles in all fields of finance, such as asset pricing, corporate finance, financial econometrics, banking, international finance, microstructure, behavioural finance, etc. The Editorial Team is willing to take risks on innovative research, controversial papers, and unusual approaches. We are also particularly interested in work produced by young scholars. The composition of the editorial board reflects such goals.