IDEAS home Printed from https://ideas.repec.org/a/taf/euract/v24y2015i4p637-658.html
   My bibliography  Save this article

Court Intervention as a Governance Mechanism over CEO Pay: Evidence from the Citigroup Derivative Lawsuit

Author

Listed:
  • Ana M. Albuquerque
  • Mary Ellen Carter
  • Luann J. Lynch

Abstract

We use an unanticipated court ruling in a lawsuit against Citigroup claiming corporate waste related to CEO pay to analyse court intervention as an alternative governance mechanism in cases of excess pay. We find a negative relation between announcement returns and excess pay, consistent with shareholders of these firms perceiving court intervention as net costly. However, we find a positive relation between announcement returns and excess pay accompanied by poor performance, suggesting that intervention is welcome when pay is more egregious. Finally, we find that firms with excess pay and whose shareholders welcome intervention reduce future pay relative to other firms, suggesting that the threat of court intervention is a potential mechanism to control excess pay.

Suggested Citation

  • Ana M. Albuquerque & Mary Ellen Carter & Luann J. Lynch, 2015. "Court Intervention as a Governance Mechanism over CEO Pay: Evidence from the Citigroup Derivative Lawsuit," European Accounting Review, Taylor & Francis Journals, vol. 24(4), pages 637-658, December.
  • Handle: RePEc:taf:euract:v:24:y:2015:i:4:p:637-658
    DOI: 10.1080/09638180.2014.937348
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/09638180.2014.937348
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/09638180.2014.937348?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bebchuk, Lucian Arye & Fried, Jesse & Walker, David I, 2002. "Managerial Power and Rent Extraction in the Design of Executive Compensation," CEPR Discussion Papers 3558, C.E.P.R. Discussion Papers.
    2. Larcker, David F. & Ormazabal, Gaizka & Taylor, Daniel J., 2011. "The market reaction to corporate governance regulation," Journal of Financial Economics, Elsevier, vol. 101(2), pages 431-448, August.
    3. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 107-156.
    4. Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
    5. Bo Becker & Daniel Bergstresser & Guhan Subramanian, 2013. "Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable's Challenge," Journal of Law and Economics, University of Chicago Press, vol. 56(1), pages 127-160.
    6. Lucian Bebchuk & Jesse Fried, 2002. "Power, rent extraction, and executive compensation," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(03), pages 23-28, October.
    7. Core, John E. & Holthausen, Robert W. & Larcker, David F., 1999. "Corporate governance, chief executive officer compensation, and firm performance," Journal of Financial Economics, Elsevier, vol. 51(3), pages 371-406, March.
    8. Core, John E. & Guay, Wayne & Larcker, David F., 2008. "The power of the pen and executive compensation," Journal of Financial Economics, Elsevier, vol. 88(1), pages 1-25, April.
    9. Daines, Robert, 2001. "Does Delaware law improve firm value?," Journal of Financial Economics, Elsevier, vol. 62(3), pages 525-558, December.
    10. Black, Bernard & Kim, Woochan, 2012. "The effect of board structure on firm value: A multiple identification strategies approach using Korean data," Journal of Financial Economics, Elsevier, vol. 104(1), pages 203-226.
    11. Ferris, Stephen P. & Jandik, Tomas & Lawless, Robert M. & Makhija, Anil, 2007. "Derivative Lawsuits as a Corporate Governance Mechanism: Empirical Evidence on Board Changes Surrounding Filings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(1), pages 143-165, March.
    12. Sefcik, Se & Thompson, R, 1986. "An Approach To Statistical-Inference In Cross-Sectional Models With Security Abnormal Returns As Dependent Variable," Journal of Accounting Research, Wiley Blackwell, vol. 24(2), pages 316-334.
    13. Cohen, Alma & Wang, Charles C.Y., 2013. "How do staggered boards affect shareholder value? Evidence from a natural experiment," Journal of Financial Economics, Elsevier, vol. 110(3), pages 627-641.
    14. Schipper, K & Thompson, R, 1983. "The Impact Of Merger-Related Regulations On The Shareholders Of Acquiring Firms," Journal of Accounting Research, Wiley Blackwell, vol. 21(1), pages 184-221.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Capkun, Vedran & Ors, Evren, 2021. "Replacing key employee retention plans with incentive plans in bankruptcy," Accounting, Organizations and Society, Elsevier, vol. 94(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hill, Mary S. & Lopez, Thomas J. & Reitenga, Austin L., 2016. "CEO excess compensation: The impact of firm size and managerial power," Advances in accounting, Elsevier, vol. 33(C), pages 35-46.
    2. Camelia M. Kuhnen & Alexandra Niessen, 2012. "Public Opinion and Executive Compensation," Management Science, INFORMS, vol. 58(7), pages 1249-1272, July.
    3. Asher Curtis & Valerie Li & Paige H. Patrick, 2021. "The use of adjusted earnings in performance evaluation," Review of Accounting Studies, Springer, vol. 26(4), pages 1290-1322, December.
    4. Carter, Mary Ellen & Li, Lei & Marcus, Alan J. & Tehranian, Hassan, 2016. "Excess pay and deficient performance," Review of Financial Economics, Elsevier, vol. 30(C), pages 1-10.
    5. Mary Ellen Carter & Lei Li & Alan J. Marcus & Hassan Tehranian, 2016. "Excess pay and deficient performance," Review of Financial Economics, John Wiley & Sons, vol. 30(1), pages 1-10, September.
    6. Amzaleg, Yaron & Azar, Ofer H. & Ben-Zion, Uri & Rosenfeld, Ahron, 2014. "CEO control, corporate performance and pay-performance sensitivity," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 166-174.
    7. Ricardo Correa & Ugur Lel, 2013. "Say on pay laws, executive compensation, CEO pay slice, and firm value around the world," International Finance Discussion Papers 1084, Board of Governors of the Federal Reserve System (U.S.).
    8. repec:mth:ijafr8:v:8:y:2018:i:2:p:1-25 is not listed on IDEAS
    9. Humphery-Jenner, M., 2011. "Internal and External Discipline Following Securities Class Actions," Discussion Paper 2011-044, Tilburg University, Center for Economic Research.
    10. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 49-100.
    11. Ormazabal, Gaizka, 2018. "The Role of Stakeholders in Corporate Governance: A View from Accounting Research," CEPR Discussion Papers 12775, C.E.P.R. Discussion Papers.
    12. Rui Albuquerque & Jianjun Miao, 2013. "CEO Power, Compensation, and Governance," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 443-479, November.
    13. Chongwoo Choe & Gloria Tian & Xiangkang Yin, 2008. "Managerial Power, Stock-Based Compensation, And Firm Performance: Theory And Evidence," Monash Economics Working Papers 21/08, Monash University, Department of Economics.
    14. Stefan Winter & Philip Michels, 2019. "The managerial power approach: Is it testable?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 23(3), pages 637-668, September.
    15. Hongfei Tang, 2014. "Are CEO stock option grants optimal? Evidence from family firms and non-family firms around the Sarbanes–Oxley Act," Review of Quantitative Finance and Accounting, Springer, vol. 42(2), pages 251-292, February.
    16. Yonca Ertimur & Fabrizio Ferri & David Oesch, 2018. "Understanding Uncontested Director Elections," Management Science, INFORMS, vol. 64(7), pages 3400-3420, July.
    17. McTier, Brian C. & Wald, John K., 2011. "The causes and consequences of securities class action litigation," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 649-665, June.
    18. Albuquerque, Rui & Lei, Zicheng & Rocholl, Jörg & Zhang, Chendi, 2020. "Citizens United vs. FEC and corporate political activism," Journal of Corporate Finance, Elsevier, vol. 60(C).
    19. Akyol, Ali C. & Raff, Konrad & Verwijmeren, Patrick, 2017. "The elimination of broker voting in director elections," Finance Research Letters, Elsevier, vol. 21(C), pages 34-39.
    20. Surjit Tinaikar, 2014. "Voluntary disclosure and ownership structure: an analysis of dual class firms," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(2), pages 373-417, May.
    21. Armstrong, Christopher S. & Core, John E. & Guay, Wayne R., 2014. "Do independent directors cause improvements in firm transparency?," Journal of Financial Economics, Elsevier, vol. 113(3), pages 383-403.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:euract:v:24:y:2015:i:4:p:637-658. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REAR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.