Roy A. Wiggins

The influence of firm- and manager-specific characteristics on the structure of executive compensation

Abstract We analyze the influence of firm and managerial characteristics on executive compensation. Consistent with theory, we find monitoring difficulties result in greater use of options while CEO and blockholder ownership result in less. Risky investment is positively related to options and negatively related to cash bonus and restricted stock, suggesting that firms use options to encourage managers to take risks. We find a negative (positive) relation between options and leverage (convertible debt) consistent with minimizing the agency costs of debt. Finally, we provide new evidence on managerial horizon and incentives, documenting a concave relation between cash bonus and CEO age.

The Interactions Between R&D Investment Decisions and Compensation Policy

We use a system of equations to investigate the endogenous relation between R&D investment and CEO compensation. Growth opportunity is positively related to the use of stock options. Stock options positively affect R&D while restricted stock has a negative influence. These results suggest that CEO compensation should balance incentive alignment and efficient risk sharing with risk-averse managers. Stock options are also found to be negatively related to leverage, but positively related to convertible debt. Additionally, this analysis suggests that institutional ownership directly influences R&D investment by providing managerial oversight and indirectly by influencing the compensation policy.

Board-of-Director Monitoring and CEO Tenure

We examine how CEO tenure and board characteristics affect board monitoring, CEO turnover, and firm performance. We find that board meeting frequency declines as CEO tenure increases and the board has a greater proportion of insiders. The intensity of both relations varies by industry. Tenured CEOs are less likely to be fired, but CEO tenure does not influence the sensitivity of forced turnover to firm performance. Increases in the equilibrium level of monitoring do not relate to operating improvements, but tenured CEOs continue to perform well even when subject to less scrutiny. Our results support the premise that the level of board monitoring evolves over time as a constrained equilibrium influenced by bargaining, learning, and the firms environment.

Earnings Management, Country Governance, and Cross-listing Evidence from Latin America

We investigate whether Latin American firms cross-listed in the United States are associated with improved earnings quality and reduced information asymmetry. We find a negative relation between earnings management and cross-listing. We also find that firms from countries with stronger governance have lower earnings management. In contrast, the relationship between cross-listing and information asymmetry is not significant. Thus, local investors are not better protected when the firm is cross-listed abroad. They are, however, better protected when their home country has stronger governance. Our results evidence the importance of country governance on the information and trading environment of Latin American firms. From a policy-making standpoint, our results indicate that efforts and resources are well spent when pursuing an enhanced governance environment at home.