Augustine Duru

The Shielding of CEO Compensation from the Effects of Strategic Expenditures

This study investigates whether and why compensation committees shield CEO compensation from income-decreasing effects of strategic expenditures. We document that firms do shield recurring expenditures such as research and development and advertising expenditures. We also find that firms shield research and development expenditures more than advertising expenditures. Our results are consistent with prior findings that suggest that compensation committees shield CEOs from non-routine transactions such as restructuring charges and extraordinary losses. Using a two-task principal-agent framework, we show that such shielding improves the efficiency of the contract by making the shielded income measure more congruent with the principals objectives.

Geographic and Industrial Corporate Diversification: The Level and Structure of Executive Compensation

We explore the relation between corporate diversification and CEO compensation. We document that geographic diversification provides a compensation premium, while industrial diversification is associated with lower levels of CEO pay. We also examine the effect of corporate diversification on the structure and performance criteria of CEO compensation contracts. We find that both diversification strategies are associated with a greater use of incentive-based compensation and with a greater reliance on market-based, rather than accounting-based measures of firm performance. Finally, we address the question of whether shareholders reward CEOs for corporate diversification. We document that while value-enhancing geographic diversification is rewarded, non-value-enhancing industrial diversification is penalized.

Linking CEO pay to firm performance: empirical evidence from the electric utility industry

Outlines previous research on the relationship between CEO compensation and firm performance, arguing that in regulated industries the executive skills sought and performance measures used might differ from those in un‐regulated firms. Uses 1992‐1995 data on the US electricity industry to investigate the interaction between four compensation components (salary, bonus, long‐term compensation and stock options) and five performance measures (market returns, return on assets, earnings per share, operating cash flow per share and sales growth). Presents the results, which suggest that changes in bonuses and stock options are closely related to changes in market return and sales growth respectively. Considers the reasons for this, the limitations of the study and some avenues for further research.

Bank accounting regulations, enforcement mechanisms, and financial statement informativeness : cross-country evidence

We construct measures of accounting regulations and enforcement mechanisms that are specific to a countrys banking industry. Using a sample of major banks in 37 economies, we find that the informativeness of banks’ financial statements, measured by the value relevance of earnings and common equity, is higher in countries with stricter bank accounting regulations and countries with stronger enforcement. These findings suggest that superior bank accounting and enforcement mechanisms enhance the informativeness of banks’ financial statements. In addition, we find that the effects of bank accounting regulations are more pronounced in countries with stronger enforcement in the banking industry, suggesting that enforcement is complementary to bank accounting regulations in achieving higher value relevance of financial statements. Our study has important policy implications for bank regulators.