I examine two sets of incentives faced by corporate CEOs to determine how they
respond to those incentives. I compare firms that restate financial statements to firms
that do not restate to test the hypotheses that bank monitoring should provide incentives
to deter misreporting. For relatively less (more) severe misreporting, I find the
likelihood of misreporting is positively related (unrelated) to bank borrowing, and that ex
ante changes in bank debt are positive (unrelated) for misreporting firms versus control
firms. These results suggest that bank monitoring is insufficient to deter or detect
misreporting, rather that it may provide incentives for managers to engage in relatively
less severe misreporting, consistent with the "debt covenant hypothesis".
I next examine the incentives that CEOs have to increase firm value that result
from their compensation packages and opportunities for advancement in the managerial
labor market. Traditional methods for estimating pay-performance sensitivity exclude
incentives that derive from opportunities for advancement in the managerial labor
market and assume a linear relation between changes in pay and changes in
performance. But results in recent literature imply that advancement opportunities may
be a significant source of incentives and that the relation between changes in pay and changes in performance may depend upon the level of performance. I estimate payperformance
sensitivities that incorporate these results. I find that although performance
may be positively related to opportunities for advancement, the contribution to a CEO's
total pay-performance sensitivity is too small to be economically significant. I also find
that pay-performance sensitivities vary depending on the level of performance and may
be higher or lower than estimates from linear models suggest. In sum, observed CEO
pay packages may not be as suboptimal as some prior studies suggest.
| Identifer | oai:union.ndltd.org:tamu.edu/oai:repository.tamu.edu:1969.1/85932 |
| Date | 10 October 2008 |
| Creators | Stanley, Brooke Winnifred |
| Contributors | Johnson, Shane A. |
| Publisher | Texas A&M University |
| Source Sets | Texas A and M University |
| Language | en_US |
| Detected Language | English |
| Type | Dissertation, text |
| Format | electronic, born digital |
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