<abstract xmlns="http://www.w3.org/1999/xhtml"><p>The article is an attempt to assess whether Stock Ownership moderates the relationship between corporate diversification and CEO compensation. Based on agency theory, we develop the hypothesis of whether when CEOs hold a large fraction of their firms’ outstanding stock, the CEOs are acting more as owners or shareholders than employees. This reduces the principal and agency relationship of agency theory, since CEOs are acting as owners rather than employees; thus the demand for further stock-based compensation is likely to be reduced because the interests of CEOs and shareholders are relatively aligned. For the purposes of this study, a sample of 2,448 CEO compensations across 1,622 firms from 1997 to 2002 was used to test several hypotheses. Corporate diversification was divided into two categories; international diversification and industry diversification. To test the hypotheses, multiple regression analysis was employed to examine stock ownership as a moderator variable on the relationship between international diversification and industry diversification and CEO total compensation with tenure, age, duality, and gender as control variables. The results indicate that stock ownership negatively and significantly influences the relationship between International diversification and CEO compensation. Additionally, the findings also confirm that stock ownership negatively and significantly influences the relationship between industrial diversification and CEO compensation. Our results are consistent with our hypotheses and indicate that firms with lower Stock Ownership produce larger interaction effects to increase international diversification and total compensation pay to CEOs, and firms with lower Stock Ownership, produce larger interaction effects to increase industry diversification and total compensation pay to CEOs.</p></abstract>

The article is an attempt to assess whether Stock Ownership moderates the relationship between corporate diversification and CEO compensation. Based on agency theory, we develop the hypothesis of whether when CEOs hold a large fraction of their firms’ outstanding stock, the CEOs are acting more as owners or shareholders than employees. This reduces the principal and agency relationship of agency theory, since CEOs are acting as owners rather than employees; thus the demand for further stock-based compensation is likely to be reduced because the interests of CEOs and shareholders are relatively aligned. For the purposes of this study, a sample of 2,448 CEO compensations across 1,622 firms from 1997 to 2002 was used to test several hypotheses. Corporate diversification was divided into two categories; international diversification and industry diversification. To test the hypotheses, multiple regression analysis was employed to examine stock ownership as a moderator variable on the relationship between international diversification and industry diversification and CEO total compensation with tenure, age, duality, and gender as control variables. The results indicate that stock ownership negatively and significantly influences the relationship between International diversification and CEO compensation. Additionally, the findings also confirm that stock ownership negatively and significantly influences the relationship between industrial diversification and CEO compensation. Our results are consistent with our hypotheses and indicate that firms with lower Stock Ownership produce larger interaction effects to increase international diversification and total compensation pay to CEOs, and firms with lower Stock Ownership, produce larger interaction effects to increase industry diversification and total compensation pay to CEOs.

Corportate Diversification and CEO Compensation: Evidence from the Moderating Effect of Stock Ownership

Department of Business, Management and Accounting

Financial Internet Quarterly

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

The article is an attempt to assess whether Stock Ownership moderates the relationship between corporate diversification and CEO compensation. Based on agency...

Corportate Diversification and CEO Compensation: Evidence from the Moderating Effect of Stock Ownership

Published Online: Dec 31, 2019

Page range: 83 - 92

Received: Jul 01, 2019

Accepted: Dec 12, 2019

DOI: https://doi.org/10.2478/fiqf-2019-0030

Keywords
CEO Compensation, Corporate Diversification, International Diversification, Industrial Diversification, Firm Performance, Investment Opportunity, Stock Ownership

© 2019 Hwei Cheng Wang et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Corportate Diversification and CEO Compensation: Evidence from the Moderating Effect of Stock Ownership

Published Online: Dec 31, 2019

Page range: 83 - 92

Received: Jul 01, 2019

Accepted: Dec 12, 2019

DOI: https://doi.org/10.2478/fiqf-2019-0030

KeywordsCEO Compensation, Corporate Diversification, International Diversification, Industrial Diversification, Firm Performance, Investment Opportunity, Stock Ownership

© 2019 Hwei Cheng Wang et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
CEO Compensation, Corporate Diversification, International Diversification, Industrial Diversification, Firm Performance, Investment Opportunity, Stock Ownership