Why CEO option compensation can be a bad option for shareholders: Evidence from major customer relationships *

• 成果类型: Article
• 署名作者: Liu, Claire; Masulis, Ronald W.; Stanfield, Jared
• 署名单位: University of Sydney; University of New South Wales Sydney; University of Oklahoma System; University of Oklahoma - Norman
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2021.06.034
• 发表日期: 2021
• 页码: 453-481
• 关键词: compensation; firm performance; product market; risk taking; supply chain

摘要

We study how the existence of important production contracts affects the choice of chief executive officer (CEO) compensation contracts. We hypothesize that having major cus-tomers raises the costs associated with CEO risk-taking incentives and leads to lower option-based compensation. Using industry-level import tariff reductions as exogenous shocks to customer relationships, we find that firms with major customers subsequently reduce CEO option-based compensation significantly. We also show that continued high option compensation following tariff cuts is associated with significant declines in these relationships and supplier firm performance. Our study provides new insights into how important stakeholders shape executive compensation decisions. (c) 2021 Elsevier B.V. All rights reserved.