CEO compensation and firm performance
Summary
The issue of corporation governance has long been a heated topic among business communities, especially the relationship between the level of CEO’s compensation and firms’ performance. Before the enactment of the Sarbanes-Oxley legislation (SOX thereafter), which regulates the unethical wrongdoings, CEOs enjoyed unreasonable high remuneration despite of their mediocre performance. The overall focus of this report is to identify the relationship between CEO’s compensation and performance of the company, and figure out whether the Sarbanes-Oxley legislation has an impact on it.
Using a sample of CEO compensation and firm performance in the fiscal year 2002 and 2004, we use the empirical analysis method to analyze the dataset. We find out the statistically significant and positive relationship between CEO’s compensation and corporation performance in 2002, and the enactment of Sarbanes-Oxley act does has an impact on it. In fact, the association between CEO compensation and firm performance in pre-SOX period almost disappears in post-SOX period.
INTRODUCTION
Responding to the emergency economic phenomenon caused by numerate corporate scandals at the start of the 21 century, the Sarbanes-Oxley Act (SOX) was passed in July 2002. This act causes a lot of changes in financial disclosure and corporate governance. Current research on SOX mainly focus on the corporate governance. This report is aimed at analyzing the relationship between CEO’s compensation and firm performance before and after SOX. The dataset (comes from SMUVista.) in fiscal year 2002 and 2004 are both analyzed and then the comparison between the two years is to be made.
DETAILED ANALYSIS
To the common sense, it is rational to assume that there exists a positive relationship between CEO’s compensation and corporate performance. To test this hypothesis, we use historic data on the 188 companies in fiscal year 2002. In the data, CEO’s compensation is measured as salary and
The issue of corporation governance has long been a heated topic among business communities, especially the relationship between the level of CEO’s compensation and firms’ performance. Before the enactment of the Sarbanes-Oxley legislation (SOX thereafter), which regulates the unethical wrongdoings, CEOs enjoyed unreasonable high remuneration despite of their mediocre performance. The overall focus of this report is to identify the relationship between CEO’s compensation and performance of the company, and figure out whether the Sarbanes-Oxley legislation has an impact on it.
Using a sample of CEO compensation and firm performance in the fiscal year 2002 and 2004, we use the empirical analysis method to analyze the dataset. We find out the statistically significant and positive relationship between CEO’s compensation and corporation performance in 2002, and the enactment of Sarbanes-Oxley act does has an impact on it. In fact, the association between CEO compensation and firm performance in pre-SOX period almost disappears in post-SOX period.
INTRODUCTION
Responding to the emergency economic phenomenon caused by numerate corporate scandals at the start of the 21 century, the Sarbanes-Oxley Act (SOX) was passed in July 2002. This act causes a lot of changes in financial disclosure and corporate governance. Current research on SOX mainly focus on the corporate governance. This report is aimed at analyzing the relationship between CEO’s compensation and firm performance before and after SOX. The dataset (comes from SMUVista.) in fiscal year 2002 and 2004 are both analyzed and then the comparison between the two years is to be made.
DETAILED ANALYSIS
To the common sense, it is rational to assume that there exists a positive relationship between CEO’s compensation and corporate performance. To test this hypothesis, we use historic data on the 188 companies in fiscal year 2002. In the data, CEO’s compensation is measured as salary and