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Is good corporate governance capable of
mitigating short-term orientation?
Sabina Makhmudova 10235132 28 June 2015
Final Draft
Universiteit van Amsterdam, Amsterdam Business School Faculty of Economics and Business
MSc Business Studies: International Management Supervisor: Robert Kleinknecht
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Statement of Originality
This document is written by Student Sabina Makhmudova who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
3 Table of Contents Abstract ... 5 1. Introduction ... 6 2. Literature review ... 8 2.1. Short-termism ... 8 2.2. Corporate Governance... 12 2.2.1. CEO compensation ... 13
2.2.2. CEO and the board of directors ... 14
2.2.3. Board of Directors ... 16
3. Theoretical Framework ... 18
3.1. CEO-duality and Short-term orientation ... 18
3.2. Board Independence and Short-term orientation ... 19
3.3. CEO Variable pay and Short-term orientation ... 20
3.4. CEO Variable pay and Short-term orientation moderators ... 20
4. Methodology ... 22
4.1. Sample and data collection ... 22
4.2. Measures... 23
4.2.1. Dependent variable ... 23
4.2.2. Independent and moderating variables ... 25
4.2.3. Control variables... 27 5. Results ... 29 5.1. Descriptive Analysis ... 29 5.2. Statistical Analysis ... 31 5.2.1. Correlation analysis ... 31 5.2.2. Regression analysis... 36 6. Discussion ... 41
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6.2. Discussion of methodology ... 46
6.3. Limitations and Future Research... 48
6.4. Managerial Implications ... 50 7. Conclusion ... 50 8. Acknowledgement ... 52 9. References ... 53 10. Appendix ... 63 List of Figures Figure 1: Conceptual Model based on hypotheses ... 22
Figure 2: Country of Origin ... 30
Figure 3: Company Industry ... 30
Figure 4: CEO-duality moderating effect ... 71
List of Tables Table 1 ... 34 Table 2 ... 35 Table 3 ... 37 Table 4 ... 63 Table 5 ... 64 Table 6 ... 70 Table 7 ... 72
5 Abstract
This paper addresses the topic of short-term orientation and its relationship with corporate governance. Previous research has found no systematic relationship between corporate governance factors and performance, emphasizing the importance of granulation of the investigation, driving attention to short-term orientation. Two contradicting theories have been emphasized in the literature: agency and stewardship theories, former receiving greater attention in the light of recent financial crisis. Three factors of corporate governance were used in this paper, namely CEO-duality, CEO variable compensation and board independence. Hypotheses were tested using a final sample of 303 European companies and using recently developed content analysis method for determination of temporal orientation. This study shows that a well-compensated CEO with a position on the board is the most long-term oriented condition and it also provides two important implications: it testes the measure of temporal orientation using content analysis and it provided insight contrary to the widespread believe that separation of CEO and chairman position is in the best interests of the company, thus, tipping the scales in favor of stewardship theory.
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1. Introduction
As Winston Churchill ones said, “All men make mistakes, but only wise men learn from their mistakes” (Churchill & Langworth, 2008, p. 452). The recent financial crisis of 2008 brought a lot of economical unrest to the world, consequences of which are still being dealt with. The financial crisis affected everyone and it would be unwise to maintain the pre-crisis strategies and courses of actions, without evaluation of underlying causes of the situation and the ways in which crises can be averted in the future. Numerous articles and books try to evaluate the consequences of the financial crisis by connecting the dots between poor management, burst of the housing bubble and the resulting effect on the stock market (Dallas, 2011; Foster & Magdoff, 2009). While the delineation of the aftereffects of crisis might be the immediate priority of the academia and analytics, the learning process comes in later with a major question in mind: how can we prevent this in the future? Organizations such as Organization for Economic Co-operation and Development tried to come up with a comprehensive list of improvements and considerations necessary to prevent history from repeating itself (OECD, 2010).
In the OECD’s report (2010) a substantial amount of attention has been devoted to different characteristics of corporate governance, such as composition and role of the board of directors and function of CEO in the board as either executive member or chairman (OECD, 2010). All of these corporate governance characteristics are believed to be related to performance, as well as short-term orientation of organization in its investment and strategic decisions, a concept that is often quoted as the underlying cause of the financial crisis (Dallas, 2011). The relationship between corporate governance and short-termism is often linked to either shareholders’ exclusive interest in fast monetary returns or managerial interest in compensations that are linked to short-term performance of the company (OECD,
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2010). However, even though the relationship between corporate governance and short-termism is often assumed, little uniformity can be identified in the findings.
Academics are divided in their opinion on the role of board composition and CEO-duality in short-term orientation. Some authors are supportive of agency theory, where managers are the agents, who are supposed to act in the best interests of the principles, i.e. shareholders (Eisenhardt, 1989). Agency dilemma arises when agent, i.e. the manager, when faced with a decision, puts his own interests and potential benefits that may contradict the interests of the principle, ahead of shareholders’ interests (Eisenhardt, 1989). In this case, managers are more oriented on good short-term performance of the company, due to the fact that managerial incentives are often linked to current performance (Eisenhardt, 1989). As was pointed out in the article by Narayanan (1985) importance of short-term incentives often outweigh the long-term incentives, because managers have a greater ability to boost short-term performance than long-short-term, especially given the inside information. A different branch of literature, however, insist on the stewardship theory, where managers are trying to be good stewards to the shareholders’ interests and avoid opportunistic behavior (Donaldson & Davis, 1991). In this case managers put organizational performance at the center and given that most stakeholder groups are interested in increase of organizational wealth, managers act as good stewards to their shareholders (Davis, Schoorman, & Donaldson, 1997). However, in certain cases stockholders may be exclusively interested in short-term performance of the company and not long-term growth, in which case stewards would either have to defend the interests of the company or succumb to the stockholder’s pressure (Donaldson & Davis, 1991; Narayanan, 1985).
Studies in the field of agency an stewardship theories to this day do not find systematic results, possibly because the answer is not simply black and white (Davis et al., 1997). Furthermore, complex relationship between CEO-duality, board memberships and
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performance, call for more granulated analysis. One of the steps towards fragmentation of the relationship at hand is addition of short-term orientation to the equation, thus raising the following question: To what extend do corporate governance factors, such as management
compensation, presence of independent directors and CEO-duality have an effect on temporal orientation?
This paper will develop the answer to the above research question in the following way. Firstly, literature review will present the current state of knowledge in this area and point out gaps in the existing research. In theoretical framework hypothesis will be presented and explained, followed by method section. Results then will be presented in a comprehensive manner and their analysis will be carried out in the discussion section. Lastly, limitations, future research suggestions and overall conclusion will be stated
2. Literature review
In this section existing knowledge in the area of short-term orientation and corporate governance will be evaluated in subsequent order. Firstly the concept of short-termism will be explained and the existing research evaluated. Secondly, concepts originating from corporate governance, such as members of board of directors, CEO-duality and CEO compensation will be defined and their relevance to short-term orientation assessed.
2.1. Short-termism
The blame for the current burst of interest to the topics such as short-termism and corporate governance at least partially can be attributed to the recent financial crisis of 2008. More than half of the articles on the topic of short-termism were written either during or after the financial crisis of 2008. The causes of financial crisis can be observed on three levels: institutional, market and organizational, the latter one being the most relevant to the topic of short-termism. Under perfect conditions short-term and long-term objectives can be aligned
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without a trade-off. However, within real life circumstances, such alignment is rarely possible (Laverty, 1996). In other words, each company faces a decision to pursue one at a cost of another, a decision companies quite often made under the pressure of improving quarterly earnings (Liljeblom & Vaihekoski, 2009). While short-termism is widely used term, as many other concepts in the field of business research, short-termism does not have one right definition that is consistently used throughout research (Jackson & Petraki, 2011; Palley, 1997). Laverty (1996) defines economic short-termism as “decisions and outcomes that pursue a course of action that is best for the short-term but suboptimal over the long run” (p. 826). Some define it as a management’s tendency to concentrate on short-term benefits at the expense of long-term goals (Aspara, Pajunen, Tikkanen, & Tainio, 2014; Marginson & McAulay, 2008).
Short-termism is often used to explain two different concepts. One is linked to short-term orientation of the managers, whose incentives are linked to company’s performance. In this case managers are often interested in undertaking short-term projects and risky investments in order to receive bonuses and establish their reputation (Palley, 1997). The second concept short-termism is used to explain is the behaviour of investors and stock markets (Jackson & Petraki, 2011; Laverty, 1996). In his article Laverty (1996) argues that markets undervalue long-term investments, thus pressuring companies into short-term performance, stating that investors often do not have interest nor necessary knowledge to undertake long-term investments and unwilling to take high risks and uncertainty (Jackson & Petraki, 2011). In the research conducted by Marginson and McAulay (2008) they further elaborate on the idea of multidimensionality of short-termism by separating it into organisational and individual level, later proving importance and relevance of both. Furthermore, short-termism is a matter of change over time and temporal orientation varies
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from company to company as a result of firm-specific condition (Souder & Shaver, 2010; Souder & Bromiley, 2012).
Short-termism can be to a certain extent compared to short- vs long-term orientation as described by Hofstede (1993), where he states that someone with short-term orientation “finds values rather oriented towards the past and present, like respect for tradition and fulfilling social obligations” (p. 90). There is, however, one major difference, while Hofstede is more oriented towards the cultural differences, the rest of described above literature is rather organisation or industry oriented. There is also some evidence which shows that companies are actually long-term oriented and question existence of short-termism all together. For example, Kabanoff and Keegan (2009) find that Australian companies are in general future oriented, rather than past or present oriented. Other researchers suggest that little empirical evidence exist that prove existence of short-termism (Miles, 1993). Even though Miles (1993) does not find significant direct prove of short-termism, he does find fluctuation in security markets that require explanation.
The causes of short-termism, however, remain unclear. Some say it is a result of flawed management practices and managerial opportunism, while others emphasize optimization problem, which entails risk aversion and creation of a single valuation model that could help with decision making, and ecological rationality, which implies more contextual approach towards time horizon decisions (Jackson & Petraki, 2011; Laverty, 1996). Jackson and Petraki (2011) outline that there are three main actors that may be responsible for short-term orientation of company: managers, shareholders and lastly gatekeepers.
As described by Jackson and Petraki (2011) there are two main reasons why managers may follow the short-term oriented strategy, either due to their professional orientation or managerial incentives. Professional orientation entails values as defined by top management which are used as a reference throughout the organisation through a variety of
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institutionalisation techniques; managerial ideology can be short-term oriented due to cognitive limitations. This view is also supported by Laverty (1996), who points that managerial opportunism and flawed managerial practices may be the root cause of short-termism. A little different, but still relevant to management perspective is the view that the less resources, such as capital, labour and time a manager has to “spend”, the more likely he is to make smaller short-term investments (Souder & Bromiley, 2012). The link between short-termism and management is also implied in the work of Dallas (2011) in addition to the emphasis on connection of managerial incentives to long-term performance of company as a counter-measure for future financial crises. Managerial perspective on short-termism can also be linked to agency problem. Agency theory implies existence of principles, i.e. shareholders in this case, and agents, i.e. managers (Eisenhardt, 1989). In theory, the agent is supposed to act on behalf of the principle; however, in reality managers often pursue their own interests, thus giving rise to agency problem (Eisenhardt, 1989). The failure to implement well-known management principles to overcome agency problem, is often used to explain the causes of financial crisis at the managerial level (Lang & Jagtiani, 2010).
There is, however, a counter theory to agency problem known as stewardship theory. CEO under this theory has no personal motivations, but rather wants to work for the benefit of the company (Donaldson & Davis, 1991). Whether the good of the company is in line with the shareholder wishes or contrary to it, is yet another question. As was seen during financial crisis of 2008, wishes of shareholders or non-executive members of board are not always in line with long-term well-being of company (Dallas, 2011). This leads to the second actor possibly responsible for short-termism, as described by Jackson and Petraki (2011), the shareholders. According to them shareholders have two main motives for short-term orientation: organisational orientation and incentives. In both cases it is important to identify
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if the shareholder acts as a firm owner or merely holds the stock for the purpose of selling it at a profit (Jackson & Petraki, 2011).
Lastly, Jackson and Petraki (2011) describe gatekeepers as yet another actor contributing to short-term orientation of the company. Jackson and Petraki (2011) define gatekeepers as a “reputational intermediary” that assures investors/markets in the reliance of the information provided by organisation. These can be rating agencies, auditors, lawyers who are directed by their personal orientation and incentives and whose affect is often neglected in corporate governance and in general this concept seemed to receive significantly less attention from academia (Jackson & Petraki, 2011).
Overall the literature on short-termism at organisational level seems to be intertwined with references to incentives and agency problems, both of which are tied to corporate governance.
2.2. Corporate Governance
The rise of importance of corporate governance is often linked to the wave of privatization and recent corporate scandals that arose as a result of poor management (Becht, Bolton, & Röell, 2003). In general the main problem of corporate governance can be explained using agency problem, where managers acts against the interests of the shareholders (Becht et al., 2003). It is often said that companies with higher agency problem, also perform significantly worse (Core, Holthausen, & Larcker, 1999). Organisational level causes of financial crisis often include factors like poor corporate governance, board members disputes and managerial opportunism (Dallas, 2011). While academic research in the area of short-termism and corporate governance may be rather limited, there were numerous attempts to explain the relationship between corporate governance and company performance. Nevertheless, Dalton and Dalton (2011) emphasize the fact that despite the great attention this topic has received, there is no empirical evidence that proves this
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relationship. Aebi, Sabato and Schmid (2012) support this view in their research, showing that none of the characteristics of good corporate governance were related to good bank performance during the financial crisis. The overall positive effect of corporate governance is questionable, thus in the following sections literature on the components of corporate governance will be discussed separately to see their individual importance.
2.2.1. CEO compensation
A great body of research has been conducted to test whether compensation of CEOs is linked to short-termism. Compensation of executive members of the board is often blamed for extensive risk taking and short-term orientation, which eventually led to financial recession (Conyon, Judge, & Useem, 2011). The article by Gopalan, Milbourn, Song and Thakor (2014) has shown that companies with more growth opportunities, long term assets and greater R&D have longer pay duration (a measure created in this article that combines and quantifies and short-term pay), in other words incentives are more linked to long-term performance of the company. Other researchers also found support for this theory, showing that introduction of incentives linked to short-term performance lead managers to adopt less future oriented strategies, emphasizing short-term gains (Bolton, Scheinkman, & Xiong, 2006; Sun, Wang, Wang, & Zhang, 2012). CEOs are tempted to undertake short-term strategies for a variety of reasons which may include empire building, real options available to managers and bonuses. It is often said that the reason managerial incentives are linked to short-term performance is due to difficulties associated with measuring long-term performance and great multitude of factors that affect it (Sliwka, 2002). Nevertheless, articles in this area of research emphasize necessity of further testing using different settings, companies and time frames. The relationship between the pay and performance remains obscure. Some indicate positive effect; others indicate no significant relationship (Boyd, 1994). Due to reoccurring failure in determining the relationship between pay and
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performance, the focus has shifted to explanation of the differences between the companies (Boyd, 1994). Laverty (1996) theoretically and Souder and Shaver (2010) empirically both support the proposition that CEO’s compensation and temporal orientation are linked. However, this view is not unanimous. One of the articles argues that the level of connection between short-termism and managerial compensation varies between different countries (Coates, Davis, & Stacey, 1995).
Overall it can be said that there is no single view on the nature of the relationship between short-termism and CEO compensation and the explanation to why it exists. Thus, further investigation is necessary to determine additional factors that may affect this relationship.
2.2.2. CEO and the board of directors
The main role of the board of directors is to make sure that the executives, including CEO, carry out their function that benefit the company’s shareholders (Finkelstein & D'aveni, 1994). However, the relationship between the CEO and the board of directors vary between companies. Some board companies resort to CEO-duality. Duality is a situation in which one individual holds both a CEO and a chair position on the board (Conyon et al., 2011; Dalton, Hitt, Certo, & Dalton, 2007). On one hand this defies the purpose of the board, by increasing CEO’s influence, on the other hand in enhance the unity of command (Finkelstein & D'aveni, 1994). Sundaramurthy, Mahoney and Mahoney (1997) argued that theoretically a manager with an exclusively executive function is more likely to be short-term oriented; however, empirical findings showed that this is not necessary true. The same goes for the investment into R&D and patents; researchers have found inconclusive result for their relationship with CEO-duality (Balkin, Markman, & Gomez-Mejia, 2000).
There is an ongoing debate about the relationship between CEO-duality and firm performance. While some articles, for example in hospitality industry, find support for the
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beneficial effect of CEO-duality, others contradict this theory by emphasizing the negative effect CEO-duality has on board independence, which is also supported by the Cadbury committee report (1992), which discourages CEO-duality (Bliss, 2011; Guillet, Seo, Kucukusta, & Lee, 2013). Krause, Semadeni and Cannella (2014) show that the meta-analysis of CEO-duality and firm performance relationship does not provide support for either side of the argument, even though some firms continue to defend the principle that independence of the board is not threatened by dual function of CEO. Meta-analysis has shown that there is no simple or direct relationship between CEO-duality and company performance (Krause et al., 2014). Furthermore, they explain that given the prior research, CEO-duality is neither “universally beneficial” nor is it “universally detrimental” (Krause et al., 2014). Theoretically speaking, the supporters of deteriorating effect of CEO-duality often side with the agency theory, while supporters of positive effect of CEO-duality side with stewardship theory (Kim, Al-Shammari, Kim, & Lee, 2009).
The effects of CEO-duality may vary. In some cases CEO-duality may give the top managers the necessary power to drive the company in the direction most beneficial for them. For example, it was found that CEO-duality is linked to unrelated diversification, due to CEO’s ability to leverage power in order to reach the desired results (Kim et al., 2009). In other cases, CEO-duality can have an effect on the remuneration of the top-management team. Remuneration committees are often created to preclude the negative effect of CEO-duality and it is generally considered that existence of this kind of committees has more effect on CEO pay, than duality (Conyon & Peck, 1998). In addition to that CEO-duality can have a significant effect on the cognition of the CEO. In case of separation of CEO and chair position, executive board has to defend its decisions and strategies in front of the non-executive board, who may challenge CEO decisions. This could help to overcome narrow temporal framing of the decision, since short-term oriented decision are often a result
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of efficiency in decision making and an attempt to decrease future losses (DesJardine & Bansal, 2015). This is further supported in the article by Mannix and Loewenstein (1994) which state that groups exhibit more long-term orientation, because the decision made by an individual are more isolated. Thus, it can be said there is an argument that combination of CEO and chairman position can result in short-term orientation due to cognitive limitations of manager.
Overall, from previous literature it can be seen that there is a variety of ways in which CEO-duality can affect temporal orientation of the company; however, the exact relationship and the underlying reasoning for this relationship require further investigation.
2.2.3. Board of Directors
The effect of board membership on short-term orientation and firm performance is rooted in the opposition of the executive and non-executive board members, whose views may not be aligned. Fama and Jensen (1983) emphasize the importance of executive directors on the board, due to their important information contribution to the creation of long-term strategy. Klein (1998) finds little relation between the composition of the board and overall firm performance, even though increasing number of executive board members did increase return on stock and investment. Especially at the time of financial crisis, it is often emphasised that managers, despite their incentives, protected the long term performance goals of the company, against the opportunistic behavior of non-execute board members and shareholders (Dallas, 2011). In addition to that it was found that companies with higher institutional ownership were often undertaking more risk leading to greater losses during financial crisis (Erkens, Hung, & Matos, 2012). At the time of financial crisis, short-term shareholders often pressured companies into undertaking riskier strategies and investments, due to their disinterest in the long-term performance of the company (Dallas, 2011). However, Bhagat and Black (2002) and Hermalin and Weisbach (1991) found that while
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numerous poorly performing firms try to increase board independence, there is no evidence proving that this strategy actually improves performance. The contradicting findings once again are a result of conflicting views of agency and stewardship theory, where role of executive members on the board is either to peruse personal interests, which could be a chase after managerial incentives or work in the best long-term interests of the company, or carry out the wishes of the board members, which could be both beneficial and detrimental for the well-being of the company.
OECD report (2010) and Cadbury committee (1992) emphasize importance of independent board members in order to insure good corporate governance. Independent director according to NASDAQ (2003) regulations is a member of a board who does not have any financial interests in the company besides the compensation received for being a board member and who has not been employed by the given company in the past three years. Previous studies have shown that companies with independent boards, i.e. boards with more independent directors, spend more money on and choose more qualified auditor (Bliss, 2011). More auditor related spending, indicates a greater concern for the long-term performance of the company. However, this view is not unanimously supported. Tsui, Jaggi and Gul (2001) argue that higher audit fees are more likely to be present in a CEO-dominated board, because an independent board would require less monitoring and risk control, thus lower audit fees. In addition to that if a connection is made between R&D spending and long-term orientation, researchers also found that large companies with more insider directors had greater R&D spending, thus were less short-term oriented (Baysinger, Kosnik, & Turk, 1991). Furthermore, boards with larger number of independent directors are significantly less likely to have fraud within the company (Beasley, 1996). In addition to that more independent board may help to prevent not only short-term orientation of the managers, but also of the
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shareholders, who often put pressure on managers to improve short-term performance, even if it is harmful for the company in the long-term (Jackson & Petraki, 2011).
Given the previous literature it can be said that there are certain pros to presence of independent board members; however, it is not yet clear if their presence will have any effect on temporal orientation of the company.
3. Theoretical Framework
In this section the theoretical framework of this paper will be established. Using previous literature argumentations will be provided in favor of a certain relationship leading up to a hypothesis.
3.1. CEO-duality and Short-term orientation
As shown in the meta-analysis of Krause (2014) and review of previous research by Kim and Buchanan (2011) the relationship between CEO-duality and performance remains a foggy area. The perception of CEO-duality as a double edged sword, in other words as a tradeoff between unity and independence is being replaced by the idea that CEO-duality cannot be simply viewed in a black and white manner (Finkelstein & D'aveni, 1994; Krause et al., 2014). At this point in research a rigorous granulation is required. Since short-term orientation is often associated with below average performance, at least in long-term, it would be in line with the agenda to ask whether CEO-duality and short-term orientation are associated. In the recent year a rapid decrease in number of companies with CEO-duality could be observed. According Stuart (2010) the number of companies that separate the position of CEO and board member has doubled from 20% to 40%, causes of which can be possibly traced back to financial crisis of 2008. Several factors should be taken in consideration. Recent spike in interest to short-termism indicates its possible association with financial crisis, which had a destructive effect on the performance of many companies. In addition, latest increase in separation of CEO and board positon and relatively obscure results
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on the effects of CEO-duality and performance, makes one wonder about the contributing role of CEO-duality in short-term orientation of the company it can be said that CEO holding a chairman position on the board increases the likelihood of short-term orientation, leading to a hypothesis:
Hypothesis 1: CEO-duality has a positive effect on company’s propensity to be more
short-term oriented
3.2. Board Independence and Short-term orientation
While the relationship between executive and shareholder representatives remains an ongoing debate between agency and stewardship theories, the role and relationship of independent directors is somewhat different. The most crucial role of the independent directors is to act as a moderator in the interaction of the other board members and to make sure the decisions made are in the best interests of the company (Greenough & Clapman, 1980). The number of independent directors per company has spiked in the recent years. According to S&P 1500 it grew from 7% in 2000 to 35% in 2014 (EY Center for Board Matters, 2014). Given the increased number of independent directors in the recent years, suggestions of Cadbury committee and some empirical evidence regarding relationship between board performance, results of which vary from study to study, it would be interesting to investigate the intermediary factor between performance and board members, namely temporal orientation. There are studies, which show that presence of independent directors decreases earnings management, which entails use of judgement in financial reporting for the purpose of misleading the stakeholders; it also decreases the negative effect of family ownership on the R&D spending and cases of fraud (Beasley, 1996; Benkel, Mather, & Ramsay, 2006; Chen & Hsu, 2009). Given the overall positive nature of the independent directors’ presence, it can be proposed that effect would be similar in relation to temporal
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orientation, in other words increase in number of independent directors would decrease short-term orientation, leading to a hypothesis:
Hypothesis 2: Proportion of independent directors on the board has a negative effect on
company’s propensity to be more short-term oriented
3.3. CEO Variable pay and Short-term orientation
CEO compensation has been long associated in research with temporal orientation of the company. Articles on this topic measured temporal orientation in a variety of ways, including R&D research investment and long-term assets. In addition to that CEO compensation has been also measured using pay duration measure as developed by Gopalan et al. (2014). However, this relationship has not yet been tested using the content analysis method for short-termism determination. As it was pointed out in the article by Gopalan et al. (2014) the research in this area has been stagnant due to difficulty in measuring temporal orientation of companies. Stron, Brett, Baumann and Reilly (1996) found that variable pay is often used in companies that face higher levels of risk. Thus, it seems appropriate that in companies with high risks and in unstable environment, managers would prefer to take more short-term oriented strategies in order to avoid risks and losses Thus it can be said that increase CEO variable compensation could decreases short-term orientation, leading to a hypothesis:
Hypothesis 3: CEO variable pay has a positive effect on the company’s propensity to be
more short-term oriented.
3.4. CEO Variable pay and Short-term orientation moderators
While the main effects of the CEO-duality, CEO compensation and board independence has been outlined, the interaction of these factors should also be considered. As
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pointed out by Krause et al. (2014), a powerful enough CEO has a potential to affect the compensation, which is set by the board. Given that CEO-duality gives more power to the CEO, it is in his best interest to make sure that the pay reflects his risk-preferences (Krause et al., 2014). One way to do so is to increase the size of fixed pay, thus reducing the risk (Westphal & Zajac, 1993). When this option is not attainable, it is more beneficial for CEO to measure company’s performance on more predictable estimate. Since short-term prediction are easier to make, CEO variable pay will be more likely to increase short-term orientation in presence of CEO-duality. Westphal and Zajac (1993) argued that while CEO-duality did increased the rate of adoption of long-term incentive programs, thus creating a pay-for-performance image, it also decreased the extent to which these plans were actually used, feeding into CEO’s risk aversion idea (Krause et al., 2014). Additionally, findings of Ryan and Wiggins (2004) show that in companies where CEOs are more involved or hold a chairman position, it is less likely that CEO compensation would be equity based. Thus, it can be hypothesized:
Hypothesis 4: CEO-duality plays a moderating role in the positive relationship between
CEO variable pay and term orientation of the company, such that short-term orientation would be higher in presence of CEO-duality
According to Boyd (1994), CEO compensation was higher in companies with less control. The premise is further supported by finding of Guthrie, Sokolowsky and Wan (2012), which show that CEO compensation decreased by 17% when companies complied with the Nasdaq/NYSE rules of independent directors. Similar results were found by Chhaochharia and Grinstein (2009); increased board oversight significantly decreased CEO compensation. Study by Ryan and Wiggins (2004) also shows that in companies with more insider
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directors CEO’s cash compensation was less likely to be replaced with equity. Since equity is a more long-term oriented compensation, this indicates that increase in board independence would have an effect on the temporal orientation of CEO’s compensation. Given that board independence has an effect on CEO compensation; it could be proposed that in presence of independent directors the negative effect of CEO variable pay on short-termism would diminish, leading to a hypothesis:
Hypothesis 5: Proportion of independent board members plays a moderating role in the
positive relationship between CEO variable pay, such that short-term orientation decreases when number of independent board members increases
Figure one depicts all of the described above hypotheses.
Figure 1: Conceptual Model based on hypotheses
4. Methodology
4.1. Sample and data collection
For this study a mixed-model approach will be used, where a mix of quantitative and qualitative data that has been quantitised will be analyzed. A sample of 726 European companies will be used. European companies have a variety of different corporate structures
CEO-Duality Short-term orientation CEO Variable Pay Board Independence + ─ + + ─
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(one-tier, two-tier and hybrid), making it a suitable region to conduct this study. For this study information from the year 2006 will be used, the reason behind it being the availability of secondary data source for the necessary information for this year and the fact that 2006 was the year preceding the financial crisis, when short-term orientation was a wide-spread phenomena, according to the literature that studies the causes of financial crisis of 2008 (Dallas, 2011). In addition to that, 2006, among other years, was used in the recent study of DesJardine and Bansal (2015). While they mainly concentrated on one industry and did a longitudinal study, this paper will use a cross-sectional data for year 2006 in a variety of industries. Companies were selected from the major stock exchange of each country presented in this study, which includes: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and Turkey.
All corporate governance data was obtained from the data collected for article by Robert Kleinknecht (2015). As outlined in the article data was collected using electronic search across the 2006 annual reports. The results were then validated by repeating this for year 2008 and running a correlation. This dataset included 726 companies. Afterwards the necessary data for measurement of short-term orientation was collected manually. Out of 726 companies, less than a half had the transcripts available. Collection of each variable will be discussed in more detail in the next section.
4.2. Measures
4.2.1. Dependent variable
4.2.1.1. Short-term orientation
A lot of authors dedicated their research towards the study of short-termism, which entails stakeholder preference for strategies that have earlier, but smaller payoff, instead of
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strategies of higher value, but later outcome (Jackson & Petraki, 2011). However, in this paper more attention will be drawn to short-term orientation, rather than the negative consequences, which are often associated with it. Literature on the topic of short-term orientation provides a multitude of ways to measure temporal orientation of the companies. Some article use R&D investment to measure temporal orientation, emphasizing that these kinds of investments indicate long-term orientation (Demirag & Doi, 2007). This method, however, has been often criticized for being not accurate and highly dependent on the nature of the industry (Laverty, 1996). Another widely used technique in this field of research is content analysis, usability of which has been assessed and supported (Duriau, Reger, & Pfarrer, 2007). Temporal orientation using content analysis has been previously achieved through analysis of chairman letters in the annual reports and conference calls (DesJardine & Bansal, 2014).
This method will be adopted for this paper, where conference calls for 726 companies will be first collected, then coded and results quantified. Conference calls will be collected from the Thomson Reuters database. Collected transcripts then will be analysed with the Coding Analysis Toolkit using the dictionary of the keywords developed in the study by DesJardine and Bansal (2015). Similarly the following formula will be applied (DesJardine & Bansal, 2015):
𝑇𝑖𝑚𝑒 𝐻𝑜𝑟𝑖𝑧𝑜𝑛 = # 𝑜𝑓 𝑠ℎ𝑜𝑟𝑡 𝑡𝑖𝑚𝑒 ℎ𝑜𝑟𝑖𝑧𝑜𝑛 𝑤𝑜𝑟𝑑𝑠
#𝑜𝑓 𝑠ℎ𝑜𝑟𝑡 𝑡𝑖𝑚𝑒 ℎ𝑜𝑟𝑖𝑧𝑜𝑛 𝑤𝑜𝑟𝑑𝑠 + #𝑜𝑓 𝑙𝑜𝑛𝑔 𝑡𝑖𝑚𝑒 ℎ𝑜𝑟𝑖𝑧𝑜𝑛 𝑤𝑜𝑟𝑑𝑠 Majority of conference calls have two sections, firstly a presentation by the CEO or another company representative and then a Q&A between the management team and analysts. It is often said that more spontaneous responses give a more accurate and honest (Lee, 2014). Given that Q&A part is more spontaneous, three measure would be created for short-term orientation, namely: full transcripts, presentation transcript and Q&A transcript.
25
This would allow to see if there is a difference between scripted and unscripted measures and makes suggestion about which to be applied in the future research.
Validity of these measures even though checked in previous studies, requires further testing. One way to test the internal validity of this measure is to examine the correlation between the short-term orientation measure and R&D investment to sales measure, which hypothetically should be negatively correlated. However, after testing, correlation showed insignificant results, thus putting criterion-related validity under question (for correlation analysis see Appendix: Table 7).
To further investigate the reliability of the test, an intracompany analysis was carried out. For a sample of companies with data available for all four quarters, it was determined that temporal orientation was either consistently long- or short-term inclined between all the quarters.
4.2.2. Independent and moderating variables
Data for all independent and moderating variables will be collected from the available secondary source, which was created using official annual statements of the companies in the years 2006-2008. Quantitative analysis will be carried out using statistical software package, such as SPSS.
4.2.2.1. CEO-duality
This measure will be used to identify whether a company’s CEO also holds the chairman position on the board of directors. Following the logic used in the previous articles like Finkelstein and D’aveni (1994), companies where CEO holds the chairman position will be coded as 1, the rest will be coded as 0.
26 4.2.2.2. CEO variable pay
This measure will be used as an indication of the compensation received by the CEO, which is calculated by deducting fixed salary from the total pay received by CEO.
CEO compensation can be measure in a variety of ways as seen in previous articles. For example, some use nominal sum of salary, bonuses and other earnings, while others use only the total cash compensation that includes fixed and variable pay, but omits long-term and deferred income (Boyd, 1994; Conyon & Peck, 1998). A simplified measure of CEO compensation would be used in this study, as shown in the formula below:
𝑉𝑎𝑟𝑎𝑏𝑙𝑒 𝐶𝑜𝑚𝑝𝑒𝑛𝑠𝑎𝑡𝑖𝑜𝑛 = 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑃𝑎𝑦 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝑃𝑎𝑦 + 𝐹𝑖𝑥𝑒𝑑 𝑃𝑎𝑦
Yet another method used to measure compensation is pay duration principle, as developed in the article by Gopalan et al. (2014), which entails a weighted average duration of four components of pay (salary, bonuses and stock options). In this paper compensation will be also measure using following formula:
𝑇𝑒𝑚𝑝𝑜𝑟𝑎𝑙 𝐶𝑜𝑚𝑝𝑒𝑛𝑠𝑎𝑡𝑖𝑜𝑛
= 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑃𝑎𝑦
𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑃𝑎𝑦 + (𝑇𝑜𝑡𝑎𝑙 𝑃𝑎𝑦 − (𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑝𝑎𝑦 + 𝐹𝑖𝑥𝑒𝑑 𝑝𝑎𝑦)
The major difference between the two is the fact that second equation also entails the long-term benefits that manager receives, while the first formula just compares the variable pay, which is associated with short-term performance.
4.2.2.3. Independent board members
This measure will be used to identify the level of independence of the board. The number of the independent directors will be divided by the total number of the board member, thus identifying the proportion of independent directors on the board.
27
𝐵𝑜𝑎𝑟𝑑 𝐼𝑛𝑑𝑒𝑝𝑒𝑛𝑑𝑒𝑛𝑐𝑒 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑖𝑛𝑑𝑒𝑝𝑒𝑛𝑑𝑒𝑛𝑡 𝑏𝑜𝑎𝑟𝑑 𝑚𝑒𝑚𝑏𝑒𝑟𝑠 𝑇𝑜𝑡𝑎𝑙 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑏𝑎𝑜𝑟𝑑 𝑚𝑒𝑚𝑏𝑒𝑟𝑠
4.2.3. Control variables
In this section a set of control variables will be presented and their relevance will be explained.
4.2.3.1. Country and Industry
The country of origin can have an effect on both corporate governance factors and on temporal orientation. While effect on corporate governance may be linked more to the regulations and formal institutions, the effect on temporal orientation may be more rooted in the differences in informal institution, i.e. culture (Hofstede, 1993).
Additionally, industry can have an effect on the temporal outlook of the company. For example, it can be said that electronics industry is more long term oriented, due to necessary R&D investment in order to stay competitive, than for example retail industry, simply due to the nature of business. As was shown in the article by Nadkarni, Chen and Chen (2015) the difference in industries’ dynamics have an effect on executives temporal orientation. A full list of all the industries used in this paper can be found in Appendix: Table 4.
4.2.3.2. Number of Committees
The number of committees, especially remuneration and compensation committees have a potential to affect the hypothesized relationship. As it was discussed by Conyon and Peck (1998) creation of committees can help in control of the company, especially CEO compensation. Since other committees, like audit committee also has can affect the overall independence of the board, the number of committees in the company is used as a measure. Below a list of all used committees can be found.
28 Nominating Committee Audit Committee Remuneration Committee Strategy Committee Risk Committee
Corporate governance Committee
4.2.3.3. Board Structure
Yet another control variable is the board structure that can be either one or two tier board. Presence of one tier board structure indicates a single board of both executive and non-executive board members. In case of two tier board, non-executive member reside in management board while non-executive directors are member of supervisory board. Given that this factor affects the line of command and the interaction between executives and non-executives, it is crucial to take these factors into consideration.
4.2.3.4. CEO tenure and age
Lastly, CEO tenure and age are important to include in control variables. The study conducted by Simsek (2007) has shown that CEO tenure has a significant effect on company’s performance and its entrepreneurial activities. Narayanan (1985) found that more experienced managers, were less likely to concentrate exclusively on short-term performance. Furthermore, it was found that CEO tenure has a positive significant effect on company’s R&D spending (Barker & Mueller, 2002). CEO age on the other hand was found to have a positive effect on CEO compensation (Becker, 2009). Given the interrelation of these two factors with both dependent and independent variables, it is important to include them in the list of controls.
29 5. Results
Following the description of the methodology it is time to proceed to the analysis of the available data and discussion of the results. Firstly, descriptive analysis of the data will be carried out to get an overall understanding of the dataset, including normality checks. Secondly, a correlation analysis will be carried out, followed by regression analysis. Lastly, supported and unsupported hypotheses will be presented.
5.1. Descriptive Analysis
A sample of 303 companies was used in the final analysis. In the sample companies originating from Netherlands, Germany, Belgium, Luxembourg, Ireland, Portugal, Greece, Denmark, Sweden, Norway, Austria, Finland, Italy, Spain, France, Turkey and Switzerland were used (see Figure 2). The most represented countries are France and Germany, with 17% and 16% respectively from the total number of companies. In addition to that, a variety of industries are presented in the given dataset, as can be seen in Figure 3. The most represented are from banking, radio telephone and chemicals industries, with 13%, 9% and 8% respectively. Regarding the companies themselves, out of 303 companies 64 had CEO-duality (21%) and the average size of the board is 15.25 (SD=6.21) members, while the average number of executive, non-executive and independent board members equal to 4.37(SD=3.31), 10.76(SD=5.20) and 8.19 (SD=5.81) respectively. The average age of CEO is 51.73 (SD=13.68) and tenure is 5.05 (SD=5.74)
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Figure 2: Country of Origin
Figure 3: Company Industry
Looking at the distribution of the dependent and independent variables, several things can be said. Both the number of independent board member and CEO variable pay are relatively symmetrically distributed, except for the spikes at 0, indicating that a lot of firms do not have any independent directors and the fact that CEO pay is often completely fixed. The distribution of short-term orientation measure is slightly negatively skewed. Overall, the data contains minor normality and skewness problems; however, according to Techchnicka
0 10 20 30 40 50 60 N u m b e r o f Co m p an ie s Country Country of Origin 0 5 10 15 20 25 30 35 40 N u m b e r o f Co m p an ie s Industry Company Industry
31
and Fidell (2001), this should not cause major problem in final analysis, especially given a sample size larger than 200.
5.2. Statistical Analysis
5.2.1. Correlation analysis
In this section the results of correlation analysis will be discussed. However, firstly, certain analysis steps will be outlined.
For the purpose of correlation analysis and the subsequent regression analysis several variables were adjusted. Two control variables were categorized into groups, namely countries and industries. Countries were put into three groups, namely western, southern and northern Europe, as they are classified by the United Nations Classification (except Turkey, which was categorized as southern Europe) (United Nations Statistics Division, 2013). Industries were classified in larger categories, with reference to SIC classification.
Some companies had missing values in the corporate governance measures or, for example, did not have a presentation part in their transcript. Missing values were coded as such in analysis and had an effect especially on the measure of CEO compensation, since in many cases, the data did not make logical sense, thus had to be excluded.
Further, comments should be made regarding the measure of short-term orientation. An adjusted version of glossary as develop by DesJardine & Bansal (2014) was initially tested. This glossary excluded words “quarter”, “quarters” and “quarterly” which were present in the original glossary, because it was assumed that since the transcripts are quarterly, this would be a more accurate measure. This was proven later wrong, because this glossary yielded worse results and thus was excluded. The original glossary, as developed in article by DesJardine & Bansal (2014) was used in the remaining of the paper.
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Lastly, it should be pointed out that two measures were used to analyze CEO compensation and three different measures of short-term orientation, as it was mentioned in method section.
Table 1 shows the descriptive statistics of all the variable and Table 2 shows the results of the correlation analysis. As it can be seen, there are a several significant correlations, which would be described in more detail. Firstly, correlations of dependent variables, namely full, presentation and Q&A short-term orientation measures will be considered. It should be said that all three measures correlated positively between each other. Looking at the correlation with independent variables, it can be seen that CEO-duality correlates negatively with all three measures. Furthermore, CEO Compensation, as defined by the second formula, also has a significant negative relationship with full and presentation short-term orientation. However, board independence shows now correlation to either one of the short-term orientation measures.
Looking at the correlations between dependent and control variables, some relationships can be pointed out. Firstly, a significant negative correlation can be seen between all dependent variables and Western European countries. On the other hand, Northern Europe showed positive significant correlation with short-term orientation measures and a negative correlation with all the independent variables. Some industries, namely construction and services have negative relationship with one of the measures of short-term orientation, while mining industry has a positive correlation. CEO age and tenure both correlate negatively with most of the short-term orientation measures. Lastly, number of committees correlates negatively with full short-term orientation.
Regarding, the correlations between controls and independent variables, several interesting relationships are worth mentioning. Firstly, CEO-duality correlates positively and board independence correlates negatively with Southern Europe, while both CEO
33
compensation measures and board independence correlated positively with Western Europe. Secondly, two-tier board has a significant negative correlation with CEO-duality. There is a variety of other correlations, all of which can be seen in the table below.
These significant correlations, especially between dependent and independent variables, give the ground for further investigation using regression analysis, where the relationship can be controlled for other variables.
34 Table 1
Descriptive Statistics
Mean SD N
Short-term orientation (full) .844 .076 297
Short-term orientation (Presentation) .845 .099 303
Short-term orientation (Q&A) .834 .094 297
CEO-Duality .211 .409 303 Variable Compensation .407 .237 233 Temporal Compensation .632 .316 162 Board Independence .522 .267 303 Western Europe .512 .501 303 Southern Europe .215 .411 303 Northern Europe .274 .447 303 Mining .033 .179 303 Construction .030 .170 303
Transportations Communication, Electric, Gas and Sanitary Services .182 .386 303
Wholesale Trade .063 .243 303
Retail Trade .033 .179 303
Finance, Insurance and Real Estate .188 .391 303
Services .099 .299 303 Manufacturing .373 .484 303 CEO Age 51.729 13.686 303 CEO Tenure 5.050 5.740 303 Number of Committees 2.772 1.201 303 Two-tier Board .518 .500 303
35 Table 2
Correlation Analysis
Variables 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
1. Short-term orientation (full) 2. Short-term orientation
(Presentation)
.765**
3. Short-term orientation (Q&A) .744** .376**
4. CEO-Duality -.336** -.213** -.312** 5. Variable Compensation -.117 -.077 -.085 -.004 6. Temporal Compensation -.175* -.232** -.041 .008 .510** 7. Board Independence -.075 -.013 -.045 -.062 .216** .089 8. Western Europe -.252** -.300** -.094 .020 .399** .260** .387** 9. Southern Europe .065 .099 .019 .222** -.037 -.025 -.292** -.535** 10. Northern Europe .222** .245** .087 -.227** -.405** -.261** -.164** -.629** -.321** 11. Mining .088 .130* -.021 -.050 .009 .025 .071 -.078 -.097 .176** 12. Construction -.079 .014 -.141* .100 .027 .002 -.085 -.062 .145* -.064 -.032 13. Transportations
Communication, Electric, Gas and Sanitary Services
.021 -.016 .060 .050 -.034 .005 -.029 -.054 .171** -.097 -.087 -.082
14. Wholesale Trade -.035 -.047 .003 .000 .115 .033 .157** .062 -.135* .055 -.048 -.045 -.122*
15. Retail Trade -.010 -.017 -.029 -.005 .022 .061 -.007 -.041 .038 .011 -.034 -.032 -.087 -.048
16. Finance, Insurance and Real Estate -.004 .018 .014 -.042 .048 .049 -.083 -.053 .180** -.106 -.089 -.084 -.227** -.125* -.089 17. Services -.068 -.129* -.022 -.009 .068 -.001 -.030 .147* -.119* -.055 -.061 -.058 -.156** -.086 -.061 -.160** 18. Manufacturing .046 .055 .023 -.015 -.135* -.092 .036 .030 -.170** .123* -.142* -.135* -.363** -.199** -.142* -.371** -.256** 19. CEO Age -.118* .034 -.130* .131* .130* .018 .275** .217** -.238** -.025 -.010 -.025 .019 .053 .019 -.118* -.025 .074 20. CEO Tenure -.154** -.138* -.129* .131* .075 .065 .114* .127* -.156** .001 .060 .019 .026 .022 .063 -.141* .063 -.008 .273** 21. Number of Committees -.120* -.106 -.072 .146* -.069 .063 .085 -.031 .079 -.038 -.042 .033 -.025 -.053 -.073 .141* .008 -.041 .058 -.002 22. Two-tier Board .110 .036 .090 -.537** .134* .086 .051 .353** -.381** -.045 .030 -.065 -.043 .004 -.081 -.043 .099 .047 -.001 -.083 -.288** Note N=303,*p<0.05, **p<0.01,*** p<0.001
36
5.2.2. Regression analysis
In this section, regression analysis for the main and the moderating effects of the independent variables on the dependent variables will be analyzed. Below a theoretical model of the proposed hypothesis can be seen.
Short-term orientation=β0+ β1*CEO-duality+ β2*CEO Compensation+ β3
*(CEO-duality*CEO Compensation) + β4* (Board Independence*CEO Compensation) +ε
In the regression analysis 36 models were tested, all of which can be found in the Appendix: Table 5. Short-term orientation was measured using three forms of conference call transcripts: complete, presentation part and Q&A part. Table 3 shows the results for the Q&A section, which is often cited as a more reliable source of information due to its unscripted nature (DesJardine & Bansal, 2015; Lee, 2014; Spitzley, 2014). In addition to that, two different measures for CEO compensation were applied, thus resulting in 6 different conditions for regression analysis. Some results remained consistent throughout the analysis, while others varied depending on the number of variables and the measures of dependent and independent variables.
37 Table 3 Regression analysis
Model 13 Model 14 Model 15 Model
16 Model 17 Model 18
Q&A Short-term orientation β SE β SE β SE β SE β SE β SE Tolerance VIF
Western Europe -0.032* 0.015 -0.011 0.017 -0.009 0.018 -0.005 0.019 -0.004 0.019 -0.010 0.019 0.444 2.251 Southern Europe 0.008 0.024 0.007 0.024 0.007 0.024 0.009 0.024 0.010 0.024 -0.005 0.024 0.624 1.604 Mining -0.016 0.036 -0.016 0.035 -0.015 0.036 -0.013 0.036 -0.014 0.036 -0.018 0.035 0.908 1.102 Construction -0.083˟ 0.049 -0.095 ˟ 0.049 -0.096 ˟ 0.049 -0.095˟ 0.049 -0.095˟ 0.049 -0.100* 0.048 0.961 1.041 Transportation Communication, Electric, Gas and Sanitary Services
0.014 0.020 0.010 0.019 0.010 0.019 0.010 0.019 0.010 0.019 0.016 0.019 0.769 1.301
Wholesale Trade 0.005 0.026 0.004 0.025 0.005 0.025 0.007 0.026 0.007 0.026 -0.003 0.025 0.850 1.176
Retail Trade -0.001 0.036 -0.010 0.035 -0.010 0.035 -0.009 0.036 -0.009 0.036 -0.012 0.035 0.918 1.089
Finance, Insurance and Real
Estate -0.019 0.019 -0.024 0.019 -0.024 0.019 -0.023 0.019 -0.024 0.019 -0.032˟ 0.019 0.758 1.320 Services -0.005 0.022 -0.005 0.021 -0.006 0.021 -0.005 0.022 -0.005 0.022 -0.012 0.021 0.804 1.244 CEO Age -0.001 0.001 -0.001 0.001 -0.001 0.001 -0.001 0.001 0.000 0.001 -0.001 0.001 0.835 1.197 CEO Tenure -0.002 0.001 -0.002 0.001 -0.002 0.001 -0.002 0.001 -0.002 0.001 -0.002 0.001 0.876 1.142 Number of Committees -0.001 0.006 -0.001 0.006 -0.001 0.006 -0.001 0.006 -0.001 0.006 0.002 0.006 0.820 1.220 Two-tier Board 0.025 0.015 -0.010 0.019 -0.011 0.019 -0.011 0.019 -0.012 0.019 -0.016 0.019 0.424 2.357 CEO-Duality -0.067** 0.022 -0.068** 0.022 -0.070** 0.023 -0.071** 0.023 0.026 0.036 0.198 5.059 Board Independence -0.010 0.029 -0.008 0.029 -0.025 0.055 -0.030 0.054 0.224 4.470 Variable Compensation -0.017 0.031 -0.040 0.070 0.011 0.070 0.135 7.383 Board Independence x Variable Compensation 0.042 0.114 0.048 0.111 0.084 11.848 CEO-duality x Variable Compensation -0.241*** 0.070 0.218 4.582 R2 0.084 0.123 0.123 0.124 0.125 0.172 R2 Change 0.084 0.038** 0.000 0.001 0.001 0.047***
