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Are long-tenured CEOs rent seekers? Analysis of cash compensation and post disposal performance

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  • Saito, Yoshie
Abstract
Are typical long-tenured CEOs rent-seekers? Do compensation committees consider undiversified risk for veteran executives and design their cash pay to limit their risk exposure? Because an exit decision requires board approval, discontinued operations provide a unique setting to analyze intervention by compensation committees. Seasoned managers should require less oversight because their ability has been revealed over time. However, as CEOs advance in their careers, they are more likely to acquire power to influence board decisions. They are also more risk averse and potentially more myopic than younger CEOs because they hold a large undiversified portfolio. Lucrative labor markets for talented retired executives can incentivize long-tenured CEOs to maintain a solid reputation. I reexamine the previously reported differential sensitivity of CEO cash compensation to positive or negative-valued disposal decisions, which can be viewed as rent-seeking. I show that cash pay for veteran CEOs are shielded from the effect of both negative and positive-valued discontinued operations, suggesting that compensation committees alter their cash pay. This evidence does not support rent-seeking. I also find strong evidence that long-tenured CEOs make better exit decisions to improve future firm performance than less experienced executives.

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  • Saito, Yoshie, 2019. "Are long-tenured CEOs rent seekers? Analysis of cash compensation and post disposal performance," Advances in accounting, Elsevier, vol. 44(C), pages 95-107.
    • Handle: RePEc:eee:advacc:v:44:y:2019:i:c:p:95-107
    DOI: 10.1016/j.adiac.2018.12.006
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    1. Guragai, Binod & Attachot, Weerapat & Peabody, S. Drew, 2020. "Financial statement presentation of discontinued operations: Determinants and consequences," Advances in accounting, Elsevier, vol. 49(C).

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    More about this item

    Keywords

    Long-tenured CEOs; Cash compensation; Rent-seeking; Exit decisions;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L - Industrial Organization
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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