Publication Type
Journal Article
Version
acceptedVersion
Publication Date
5-2024
Abstract
The average total compensation of directors in U.S.-listed companies was $342,030 in 2020, 5.06 times the median household income. Directors set their own pay, giving rise to potential self-dealing. We argue and document that in the presence of self-dealing, external mechanisms such as legal standards act as effective means of governance. Following a landmark Delaware court ruling that subjected director pay to a more stringent legal standard, Delaware-incorporated firms reduced director compensation relative to non-Delaware firms and experienced positive and non-transient stock price reactions. Our results indicate that proper governance of director compensation enhances firm value.
Keywords
Determinants, Director compensation, Natural experiment, Seinfeld v. Slager, Self-dealing
Discipline
Accounting | Corporate Finance | Human Resources Management
Research Areas
Corporate Governance, Auditing and Risk Management
Publication
Journal of Financial Economics
Volume
155
First Page
1
Last Page
14
ISSN
0304-405X
Identifier
10.1016/j.jfineco.2024.103813
Publisher
Elsevier
Citation
FANG, Lily and HUANG, Sterling.
The governance of director compensation. (2024). Journal of Financial Economics. 155, 1-14.
Available at: https://ink.library.smu.edu.sg/soa_research/2042
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jfineco.2024.103813