Corporate Governance and Executive Compensation in Bulgaria after Mass Privatization: Evidence from New Panel Data

By using new panel data for a sample of Bulgarian firms that comprises both state-owned and privatized firms (including new private firms), evidence is presented on the potential impact of ownership and age of the firm on diverse issues concerning corporate governance and executive compensation during 1997–2001. Privatization status and whether firms are de novo or not is found to be associated with differences in many areas including: the size and composition of company boards; the size of CEO pay; internal wage differences; the incidence of performance-based compensation (PBC); firm objectives; and patterns of decision-making influence.To investigate the determinants of executive compensation we first estimate standard CEO specifications. These baseline regressions reveal that CEO pay is: (i) positively related to size (ii) positively related to performance; (iii) significantly affected by ownership; and (iv) influenced by whether a firm is de novo or not. These findings and the fact that both size and performance elasticities are much larger than those estimated before the start of mass privatization provide more general support than previously for the view that privatization has imposed strong discipline on the level of CEO compensation. In a series of additional regressions we proceed beyond standard specifications and examine the impact on CEO pay on other aspects of corporate governance. We find CEO pay is associated with: decision-making influence; whether the contract provides for PBC; whether the firm belongs to an employer's federation; the extent of employee and managerial ownership. However some dimensions of corporate governance are not systematically associated with CEO pay. Chief amongst these is board structure. Many of these findings provide support for the view that managerial influence (rather than agency relationships) plays a key role in corporate governance in Bulgarian firms.