This research links together disparate literature on family and nonfamily firms, large and small firms, and risk for small firms. The literature is not coherent in one theme: whether family firms operate with greater risk relative to nonfamily firms. Yet the literature finds performance advantage to family firms without an explanation of why family firms on average generate better accounting returns and values relative to nonfamily firms other than for reduced agency costs translated into value. The first essay examines two measures of risk--debt ratio and idiosyncratic risk--of small publicly held family firms relative to nonfamily firms to investigate differences in financial risk between them. Using a unique hand-collected data set of small family and nonfamily firms, I analyze certain firm characteristics (family ownership, family member on the board, size, and dual class status) and find that family and nonfamily firms do not differ in their book-based debt ratios but do differ in their market-based debt ratios. Specifically, I find that family firms that tightly control voting rights through dual class status have higher debt ratios and hence have higher risk than nonfamily firms. Furthermore, I find a positive relation between idiosyncratic risk and family ownership, and I find as the percentage of family ownership increases idiosyncratic risk increases. The second essay utilizes the likelihood of incentive compensation presence and incentive compensation ratio of small publicly held family firms relative to nonfamily firms to investigate differences in CEO dividends and incentive compensation. The tools available for boards of directors to incentivize CEOs to act in accordance with diverse shareholder wishes, including risk-taking, investment selection, and the on-the-job consumption of resources, are stock options, stock grants, and cash bonuses. I argue that agency theory in practice is imperfect in incentive contracting. Specifically, CEO dividends and family ownership reduce the likelihood of the existence of an incentive compensation plan. I find in the presence of CEO dividends that family and nonfamily firms differ in their incentive compensation ratios and the likelihood of incentive compensation. In my sample, I find a significant negative relation between the CEO dividend income ratio and the incentive compensation ratio and between family ownership percentage and the incentive compensation ratio. Lastly, consistent with current literature, I find that growth opportunities positively influence both family and nonfamily firms' incentive compensation ratios.

Executive remuneration has been discussed extensively in both academia and industry, causing much disagreement. This dilemma is not exclusive to South Africa as executive remuneration has been central in a number of company scandals globally and considered a critical contributor to the global financial crisis. The purpose of this research was to identify and compare the significant CEO pay-performance relationships between the developed and developing economies of Australian and South African publicly listed companies respectively. International comparisons of CEO pay-performance relationships are scarce, with the majority of studies comprising of only single-country analyses. Historical inconsistent remuneration practices of publicly listed companies have resulted in varied effects on company performance and shareholder value creation. CEOs are witnessed receiving large remuneration packages while delivering little shareholder value. Increased public attention has called for stringent corporate governance measures for CEO remunerations schemes. The research study was conducted as an empirical explanatory quantitative study to further understand the relationship between CEO remuneration practices and the financial performance of Australian and South African publicly listed companies. The overarching principal finding of the study was the confirmation of the difference in the significant pay-performance relationships between Australian and South African publicly listed companies, with results indicating that only a negligible portion of the variance in CEO remuneration can be attributed to financial performance measures. The increase in the globally mobility of CEOs has added an additional level of complexity to the pay-performance relationship. Contributing to the field of human resource management and remuneration this study builds on the understanding of CEO pay-performance relationship to maximise shareholder value creation and retain talented CEOs. / Mini Dissertation (MBA)--University of Pretoria, 2018. / Gordon Institute of Business Science (GIBS) / MBA / Unrestricted

Real earnings management has been a subject of increasing debate ever since the passing of the Sarbanes-Oxley act in the united states. As research has pointed towards real earnings management increasing this has sparked discussions on whether real earnings management is damaging to companies, or if it is benefiting them, or if it lies somewhere in between. Forthis paper we wanted to examine how the financial incentives of a CEO would affect the usage of real earnings management. Are CEO’s being poorly motivated, and as a result harming their companies? To guide the paper,we decide to formulate our research question thusly: How do different forms of CEO compensation affect real earnings management? In this paper we attempt to find correlations between indicators of realearnings management and threedifferent forms of CEO compensation. For our indicators we follow to a paper by Roychowdhury, titled “Earnings Management Through Real Activities Manipulation”and calculate abnormal cash flow from operations, and abnormal production. These indicate usageof overproduction, reduction of discretionary expenses, and moving sales across periods (Roychowdhury, 2006). For forms of CEO compensation,we measure them as a ratio of total compensation. We track salary, bonuses, and stock ownership. In our results we can see that all three of these are significantly correlated to both of our real earnings management indicators. Bonuses have a positive correlation to abnormal production, and a negative correlation to abnormal cash flow from operations. Salary is positively correlated to both our indicators, and ownership is negatively correlated to both our indicators. Our final conclusion is that yes, the makeup of a CEO’s compensation has a significant effect on the usage of real earnings management within the company.

Poor decisions and conflicts of interest by members of company boards of directors have been a factor in the dramatic rise in chief executive officer (CEO) compensation, resulting in a lower return on equity (ROE) for shareholders. The purpose of this correlational study was to examine the relationship between CEO compensation, CEO duality, and ROE after controlling for CEO age, CEO tenure, and firm size, as measured by total assets. Agency theory was the theoretical framework for this study. The study examined whether a statistically significant relationship existed between CEO compensation, CEO duality, and ROE, after controlling for CEO age, CEO tenure, and firm size. Archival data were collected and analyzed from a sample of publicly traded firms in the United States listed on the 2016 Standard & Poor's 500 Index. Hierarchical multiple regression techniques were used to test the relationship between variables. The results indicated that there was not a statistically significant relationship between CEO compensation, CEO duality, and ROE after controlling for CEO age, CEO tenure, and firm size. The study may contribute to positive social change by increasing the potential for board of directors' members to implement best practices, contributing to reduced shareholder conflicts, less litigation, higher ROE, and enhanced investor confidence benefiting emerging economies and local communities.

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As financial intermediaries, banks are "special" because they play an important role in transferring funds from surplus spending units to deficit spending units and serve as a channel of monetary policy. Therefore, the safety and soundness of banks is essential to the financial stability and economic development. This study investigates how bank governance mechanisms, namely, executive compensation and board of directors, affect bank safety. Given the unique nature that bank assets are opaque, bank governance is expected to be different from corporate governance of industrial firms. This study also investigates how the opaqueness nature of bank assets affects the compensation design of bank executives. Chapter 1 investigates the association between asset opacity and CEO pay-performance sensitivity of bank holding companies (BHCs). Contrary to the monitoring cost hypothesis according to which when information asymmetry is high firms rely more heavily on equity-based compensation, I find that when the share of opaque assets in total assets increases, pay-performance sensitivity in BHCs declines. This finding supports the view that when the share of opaque assets increases, managers can pursue risky projects to a greater extent in the interests of shareholders but at the expenses of bondholders, and, hence, the optimal compensation structure in BHCs with larger share of opaque assets has a lower pay-performance sensitivity to restrain managerial risk-taking incentives, reducing the conflicts of interests between shareholders and bondholders. The negative effect of asset opacity on pay-performance sensitivity is robust after accounting for the endogeneity of asset opacity and using various compensation measures. In addition, I find that higher pay-performance sensitivity generally leads to a greater share of opaque assets in total assets. The results of this study suggest that asset opacity is an important determinant of compensation structure in the banking industry. BHCs should use caution when using stocks and options to promote prudent risk taking under bank asset opacity conditions because opaque bank assets make risk-shifting behaviors induced by equity-based compensation difficult to monitor, threatening the bank stability. Regulators should also account for this opacity effect. Chapter 2 investigates the relationship between insolvency risk and executive compensation for BHCs over the 1992-2008 period. I employ CEO compensation sensitivity to risk (vega) and pay-share inequality between the CEO and other executives as measures of compensation and employ a simultaneous equation model to account for the endogeneity problem between vega and risk. Five main results are obtained. First, CEO compensations in BHCs have risen in response to deregulation to resemble those of the industrial firms. Second, higher vegas lead to greater bank instability. Third, the association between bank stability and managerial compensation is bi-directional; higher vegas induce greater risk and vice versa. Fourth, BHCs in the next to the largest-size group increase CEO vegas the most and have the strongest potential to create instability in the financial industry, such as the one witnessed in 2007-2009. Fifth, increased pay-share inequality has effects opposite to those of the increase in vega; greater pay-share inequality is associated with greater bank stability. Implications of executive compensation effects on instability for depositors, deposit insurers and regulators are drawn. Chapter 3 investigates the association between the structure of board of directors and risk taking of bank holding companies. I use the number of directors on the risk committee and the frequency of its meetings to measure the strength of risk management exercised by bank boards. Several interesting findings are obtained. First, banks with stronger risk committees, namely risk committees with a greater number of directors and more frequent meetings, are associated with more diversified loan portfolios, greater amounts of safer loans, less mortgage-backed securities, and lower market risk. These results continue to hold even after controlling for the possible endogeneity problem using the dynamic panel GMM estimator. Overall, these results suggest that stronger risk management by bank boards has a positive and significant impact on banks' safety and soundness. Second, the percentage of banks having a risk committee has been increasing steadily since 1999, suggesting bank boards have gradually taken a greater role in risk management and their fiduciary duties have expanded beyond shareholders to include depositors. However, less than half of bank boards have a risk committee before 2007, suggesting weak risk management at the top level and the possibility that bank boards may have failed to control the excessive risk-taking in the banking industry leading to the recent financial crisis. Finally, the percentage of banks with a risk committee is still less than 60% after the crisis, suggesting that depositors and bank supervisors could enhance the stability of banks by further improving the effectiveness of internal risk control at bank boards. / Business Administration/Finance

This dissertation studies international acquisitions mainly in terms of their impact on firm competitiveness and CEO compensation. International acquisitions have been used extensively by multinational companies for internationalization purposes. They are the main drivers of foreign direct investment flow around the world. The large number of international acquisitions and the amount of money used for them make these acquisitions important corporate strategies to examine. This study explores from different perspectives the implications of international acquisitions for firms. In the first chapter, we assess the impact of international acquisitions on the competitiveness of companies. Competitiveness has been studied mostly at the country and industry levels; firm-level competitiveness has been understudied, and the impact the organizational choices of companies have on competitiveness have not been fully explored. This study attempts to fill this gap by examining the impact of international acquisitions on firm competitiveness. Building on the resource-based view, internalization theory, agency theory and managerial hubris we propose that international acquisitions enhance competitiveness. We also develop a competing hypothesis about the negative impact of IAs on competitiveness using agency view, integration issues, and information asymmetry perspective. We test our model with a sample of acquisitions between 1985 and 2007. We find that international acquisitions have a positive effect on firm competitiveness. We also find variations in the impact of international acquisitions across different dimensions of competitiveness and benchmarks. We also investigate factors that affect the success of international acquisitions. Our evidence suggests that the acquirer's resources and capabilities play a crucial role in the success of international acquisitions. In the second chapter, we explore the association between acquisitions and CEO compensation from two different perspectives. Agency theory, which assumes a conflict between shareholders' and executives' interests, predicts a positive impact of acquisitions on CEO compensation. In contrast, subscribers of stewardship theory question the assumption of a conflict of interest and propose that acquisitions have no impact on CEO compensation. We test the prediction of agency view with a sample of U.S. acquisitions for the period 1995 to 2007. Our results provide evidence for the agency view. Unlike prior studies, this study distinguishes between international and domestic acquisitions, and assesses their impact. We find that international acquisitions have less of a positive effect on CEO compensation than domestic acquisitions. Finally, we investigate some deal characteristics and show that the relatedness of the acquirer and the target influences post-acquisition CEO compensation. We provide an in-depth literature review of acquisition research in the third chapter. In addition to discussing the antecedents, outcomes, and success/failure factors of acquisitions in general, we focus on international acquisitions as well. We discuss the differences between international and domestic acquisitions and review the literature of international acquisitions as a mode of entry. More important, we identify theoretical and methodological gaps, unanswered questions, trends, and understudied areas in acquisition research. Building on these, we provide recommendations and directions for future acquisition research. Overall, this study examines the implications of international acquisitions for firms. Our findings indicate that international acquisition is an important phenomenon that influences the competitiveness of firms and governance through effects on CEO compensation. One of the major contributions of this study is to show that international acquisitions have different characteristics than domestic acquisitions. Our study also identifies issues that need to be resolved in acquisition research and propose ways to address those issues. Our study adds fresh insights to the literature on M&As, competitiveness, and CEO compensation. / Business Administration/International Business Administration

While there is a wide body of literature examining the relation between CEO compensation and firm performance, few studies have directly tested the proposition that a strong pay-performance link: leads to improved future performance. This paper tests the hypothesis that a strong pay-performance link: leads to better managerial decisions. Following Jensen and Murphy's (1990b) methodology, pay-performance sensitivities are estimated for the CEOs of 105 NYSE and AMEX firms. The relation between the estimated pay-performance sensitivities and subsequent acquisition performance is examined for a sample of 140 acquisitions over the period 1980-86. Acquisition performance is measured by cumulative abnormal announcement returns for the event windows: [0], (-1,+1], [- 5, + 1], [- 5, +40], and [- 20, +40]. After controlling for other variables that are related to acquisition performance, a significant positive relation is observed between measures of pay-performance sensitivity and subsequent acquisition performance. The results suggests that a strong pay performance link may better align CEO and shareholder interest, and lead to improved future CEO performance. In addition, evidence is presented that suggests that optimal compensation design should jointly consider both stock options and traditional forms of compensation. / Ph. D.

For more than a decade, to reduce the agency problem, various ways have been examined on how to align the interest of manager with shareholders. Evidence and empirical findings are conflicting on the agency problem. Recently, deferred compensation as one incentive compensation draws the attention as a means to incentivize CEOs to make them work for the firm. However, it is still not evident if deferred compensation has effect on aligning CEOs with the firm’s goal possibly due to the issue on data. Therefore, the first essay investigates if deferred compensation has the effect on the agency problem and on the firm performance improvement after dealing with the data issue. This paper mainly aims to investigate if there is the non-linear relationship between the investment choice problem and the deferred compensation as Jensen and Meckling (1976) claim. This paper concludes that deferred compensation from NQDC table has positive and significant effect on the firm performance and the investment choice problem. More importantly, following McConnell and Servaes (1990), this paper finds the curvilinear relationship between Tobin’s Q and the deferred compensation and can confirm Jensen and Meckling (1976) theoretical application. The second essay aims to clarify the understanding on the relationship between the firm’s cash holdings and its causes by introducing the more detailed relationship between cash holdings and macroeconomic uncertainty. While previous literature tries to explain the level of cash holdings mainly by the firm-level variables, this study considers the full impact of the macroeconomic uncertainty on the level of cash holdings by introducing the firm’s heterogeneous exposure to macroeconomic uncertainty to see if the heterogeneity can tell the difference in the change in the level of cash holdings. This paper finds that macroeconomic uncertainties measured by difference macroeconomic condition variables are significant and contribute to the change in cash holdings. Additionally, this paper shows that the firms’ different level of exposure to macroeconomic uncertainty can cause the different degree of cash holdings and that firms with the higher level of exposure have the higher level of cash holdings.

Abstract Background: Following the financial crisis in 2008, a debate concerning excessive compensation of CEOs in retail banks arose. Previous studies have examined the association between CEO compensation and different factors namely, firm performance, board characteristics and firm size. Although the literature regarding the impact of the financial crisis and government intervention on CEO compensation is still to be empirically explored.   Purpose: To examine if the determinants of CEO compensation in retail banks have changed following the 2008 financial crisis and to determine if government intervention of retail bank have influenced the CEO compensation.   Method:  To achieve the purpose, the thesis takes on a deductive, quantitative research approach through the use of a multiple linear regression model. The multiple regression implements previously established determinants of executive compensation (Randoy & Nielsen, 2002). The regressions use accounting- and non-financial data that is collected from annual reports published by a sample of eight retail banks listed on the Stockholm- and London Stock Exchange over 16 years between 2002-2017.   Conclusion: The thesis finds that the financial crisis had little impact on the determinants of the CEO compensation. Although, the thesis is able to conclude that the government intervention of the retail banks in Sweden and United Kingdom follow the expectations stated beforehand, since the result show that the compensation of the CEO is reduced in those banks affected by government intervention.