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FINANCIAL CONTRACTING WITH CEOs: AN EXAMINATION OF WEALTH GENERATION OR RENT EXTRACTION IN AN ENVIRONMENT OF CHANGING CONTROL RIGHTS

MAISONDIEU LaFORGE, OLIVIER JULIEN PIERRE
http://rave.ohiolink.edu/etdc/view?acc_num=ucin1085774853

Abstract Details

2004, PhD, University of Cincinnati, Business Administration : Finance.
When corporate governance is effective, new managerial contracts should maximize shareholder wealth. The OBRA (Omnibus Budget Reconciliation Act) of 1993 provides a natural environment for examining the effectiveness of corporate governance. By changing the conditions for compensation deductibility for tax purposes, OBRA encourages contract changes that reduce agency costs, but increase incentive compensation. If corporate governance is weak, managers can expropriate wealth in the new compensation contracts. The examination of contracts following then enactment of this law sheds light on contract valuation and the effectiveness of corporate governance. The paper finds that firms that were affected by the OBRA 1993 $1 million cap on salaries have abnormally high returns around the board meeting date and proxy date at which the contract was voted on. These findings are consistent with effective corporate governance and contrary to expropriation theories. Bonus payments increase shareholder wealth only under existing contracts. Operating performance improves for firms that changed managerial contracts, but were not affected by OBRA. For firms affected by OBRA, firm operating performance does not improve consistently over the next 3 years. While prior performance was low relative to comparison groups, post contracting performance is on par with comparison groups. These findings are consistent with effective corporate governance and efficient contracting. They also show that OBRA affected firms increased shareholder wealth, not by improving operating performance, but by reducing agency costs.
Dr. Yong Kim (Advisor)
88 p.
corporate governance; managerial compensation; contracting

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Citations

  • MAISONDIEU LaFORGE, O. J. P. (2004). FINANCIAL CONTRACTING WITH CEOs: AN EXAMINATION OF WEALTH GENERATION OR RENT EXTRACTION IN AN ENVIRONMENT OF CHANGING CONTROL RIGHTS [Doctoral dissertation, University of Cincinnati]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=ucin1085774853

    APA Style (7th edition)

  • MAISONDIEU LaFORGE, OLIVIER. FINANCIAL CONTRACTING WITH CEOs: AN EXAMINATION OF WEALTH GENERATION OR RENT EXTRACTION IN AN ENVIRONMENT OF CHANGING CONTROL RIGHTS. 2004. University of Cincinnati, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=ucin1085774853.

    MLA Style (8th edition)

  • MAISONDIEU LaFORGE, OLIVIER. "FINANCIAL CONTRACTING WITH CEOs: AN EXAMINATION OF WEALTH GENERATION OR RENT EXTRACTION IN AN ENVIRONMENT OF CHANGING CONTROL RIGHTS." Doctoral dissertation, University of Cincinnati, 2004. http://rave.ohiolink.edu/etdc/view?acc_num=ucin1085774853

    Chicago Manual of Style (17th edition)

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© 2004, all rights reserved.
This open access ETD is published by University of Cincinnati and OhioLINK.