Essays on the effect of excess compensation and governance changes on firm value

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dc.contributor.author Dah, Mustafa A.
dc.date.accessioned 2018-03-16T08:19:55Z
dc.date.available 2018-03-16T08:19:55Z
dc.date.copyright 2012 en_US
dc.date.issued 2018-03-16
dc.identifier.uri http://hdl.handle.net/10725/7220
dc.description.abstract This dissertation consists of three essays on the effect of excess compensation and corporate governance changes on the firm’s performance. The first paper utilizes a cost minimization stochastic frontier approach to investigate the efficiency of director total compensation. Our findings suggest that board members are over compensated. We show that, on average, the director actual compensation level is above the efficient compensation level by around 63%. Our results suggest that an increase in director excess compensation decreases the likelihood of CEO turnover, reduces the turnover-performance sensitivity, and increases managerial entrenchment. Thus, the surplus in director compensation is directly associated with managerial job security and entrenchment. Furthermore, although director excess compensation is not significantly inversely related to the firm’s future performance, it has an indirect negative effect on future performance through its impact on the entrenchment performance relationship. Therefore, this essay proposes that the overcompensation of directors is directly associated with a board culture predicated by mutual back-scratching and collusion between the CEO and the board members. The second essay tests the effect of an exogenous shock, the Sarbanes-Oxley Act (SOX) of 2002, on the structure of corporate boards and their efficiency as a monitoring mechanism. The results suggest an increase in the participation of independent directors at the expense of insiders. Consequently, we investigate the implications of board composition changes on CEO turnover and firm value. We document a noticeable reduction in CEO turnover in the post-SOX period. We also demonstrate that, after SOX, a board dominated by independent directors is less likely to remove a CEO due to poor performance. Finally, we highlight a negative association between the change in board composition and firm value. We propose that our findings are predicated on an off equilibrium result whereby firms were forced to modify their endogenously chosen board composition. Therefore, contrary to the legislators’ objectives, we suggest that the change in board structure brought about inefficient monitoring and promoted an unfavorable trade off between independent directors and insiders. The third essay examines the relationship between the firm’s governance structure and its value during different economic conditions. We show that both relative industry turnover and CEO entrenchment increase during economic downturns. We also find that relative industry turnover and managerial entrenchment have opposite impacts on the value of the firm throughout the recessionary period. While industry turnover leads to an appreciation in firm value, managerial entrenchment reduces shareholders’ wealth. The negative impact of managerial entrenchment on firm value, however, outweighs the positive impact of industry turnover. Accordingly, we propose that a recession provides managers with a good opportunity to camouflage their behavior and extract more private benefits and, thus, blame the poor performance on bad economic conditions. en_US
dc.language.iso en en_US
dc.publisher University of Central Florida
dc.subject Corporate governance en_US
dc.subject Directors of corporations -- Salaries, etc. en_US
dc.subject Corporations -- Finance en_US
dc.subject United States -- Sarbanes-Oxley Act of 2002 en_US
dc.title Essays on the effect of excess compensation and governance changes on firm value en_US
dc.type Thesis en_US
dc.term.submitted Spring en_US
dc.author.degree PHD en_US
dc.author.school SOB en_US
dc.author.idnumber 200104725 en_US
dc.author.department Department of Finance and Accounting (FINA) en_US
dc.description.embargo N/A en_US
dc.description.physdesc x, 132 pages en_US
dc.author.advisor Frye, Melissa B. en_US
dc.publication.place Orlando, Fla.
dc.description.bibliographiccitations Includes bibliographical references. en_US
dc.identifier.ctation Dah, M. A. (2012). Essays On The Effect Of Excess Compensation And Governance Changes On Firm Value. en_US
dc.author.email mustafa.dah@lau.edu.lb en_US
dc.identifier.tou http://libraries.lau.edu.lb/research/laur/terms-of-use/articles.php en_US
dc.identifier.url http://stars.library.ucf.edu/cgi/viewcontent.cgi?article=3116&context=etd en_US
dc.publisher.institution University of Central Florida en_US
dc.author.affiliation Lebanese American University en_US

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