Seminar - Getting paid when books are cooked: Exploring CEO initial pay in the aftermath of financial fraud

You are cordially invited to attend a research seminar by Mads Emil Wedell-Wedellsborg, Henley Business School. Follow the link in your calendar email invitations(Join Microsoft Teams Meeting) to join the seminar on Wednesday, 2nd June at 13.00.

Abstract:

Financial misconduct events increase the attention for corporate governance action. In this paper, we investigate two concurrent corporate governance mechanisms as a response to corporate misconduct – the replacement of the CEO and the initial pay of the new CEO. While replacement of the CEO in some cases is merely an act of scapegoating, the chief executive is in most cases aware of the malpractice and should be held responsible. The paper combines aspects from the literature on executive pay, particularly focusing on the initial remuneration, with research on financial fraud. We find that a new CEO entering a firm in a post-misconduct regime faces higher job demands than CEOs taking over a firm without misconduct and subsequently receive higher initial pay in the first full year in the job. By utilising the Execucomp database on executive compensation in all listed American firms (1999-2019) and data from the US Security and Exchange Commission’s “Accounting and Auditing Enforcement Releases”, we show empirical support for a larger CEO compensation in post-financial misconduct succession. Our results are tested and contextualised through a propensity score matching methodology, comparing firms where succession happens following misconduct with similar firms experiencing succession without misconduct.