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Dynamics of managerial power and CEO compensation in the course of corporate distress: Evidence from 1992 to 2019

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  • Sheng Guo
  • Qiang Kang
  • Oscar A. Mitnik

Abstract

We study the dynamics of two governance constructs, managerial influence over the board of directors and chief executive officer (CEO) compensation, in firms undergoing distress during 1992–2019. Data show a clear trend that governance improves over time, which confounds the inference about the effects of distress on governance. Controlling for the secular changes with a bias‐corrected matching estimator, we find that distressed firms reduce managerial board appointments and CEO pay, intensify managerial incentive alignment, and increase CEO turnover. The bulk of CEO compensation changes in distressed firms derives from the performance‐related part of compensation, consistent with the “shareholder value” view of CEO compensation.

Suggested Citation

  • Sheng Guo & Qiang Kang & Oscar A. Mitnik, 2022. "Dynamics of managerial power and CEO compensation in the course of corporate distress: Evidence from 1992 to 2019," Financial Management, Financial Management Association International, vol. 51(3), pages 797-825, September.
    • Handle: RePEc:bla:finmgt:v:51:y:2022:i:3:p:797-825
    DOI: 10.1111/fima.12384
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    More about this item

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General

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