Determinants of director compensation in two-tier systems: Evidence from German panel data

Review of Managerial Science

Volumn 6, Issue 1, 2012, Pages 33-79

  Andreas, Jörn M ^a   Rapp, Marc Steffen ^b   Wolff, Michael ^a  

^a UNIVERSITY OF KARLSRUHE   (Germany)

^b TECHNICAL UNIVERSITY OF MUNICH   (Germany)

Author keywords

Agency costs; Corporate governance; Director compensation; Two tier system

Indexed keywords

EID: 84855245821     PISSN: 18636683     EISSN: 18636691     Source Type: Journal    
DOI: 10.1007/s11846-010-0048-z     Document Type: Article

References (160)

1. Adams R (2003) What do boards do? Evidence from board committee and director compensation data. Working paper, New York.
2. Adams R, Ferreira D (2008) Do directors perform for pay? J Acc Econ 46: 154-171.
3. Adams R, Ferreira D (2009) Women in the boardroom and their impact on governance and performance. J Financ Econ 94: 291-309.
4. Adams R, Hermalin BE, Weisbach MS (2009) The role of boards of directors in corporate governance: a conceptual framework and survey. Working paper, Los Angeles.
5. Agrawal A, Mandelker G (1987) Managerial incentives and corporate investment and financing decisions. J Financ 42: 823-837.
6. Aguilera VR, Jackson G (2003) The cross-national diversity of corporate governance: dimensions and determinants. Acad Manag Rev 28: 447-465.
7. Anderson MC, Banker RD, Ravindran S (2000) Executive compensation in the information technology industry. Manag Sci 46: 530-547.
8. Andreas J, Rapp MS, Wolff M (2009) Vergütungspraxis in Aufsichtsräten des Prime Standard. Der Aufsichtsrat 6(3): 34-35.
9. Arellano M (1987) Computing robust standard errors for within-groups estimators. Oxf Bull Econ Stat 49: 431-433.
10. Arellano M (1993) On the testing of correlated effects with panel data. J Econometrics 59: 87-97.
11. Baltagi B (1995) The econometrics of panel data. Wiley, Chichester.
12. Baltagi B, Bresson G, Pirotte A (2003) Fixed effects, random effects or Hausman Taylor? A pretest estimator. Econ Lett 79: 361-369.
13. Barkema HG, Gomez-Mejia LR (1998) Managerial compensation and firm performance: a general research framework. Acad Manag J 41: 135-145.
14. Baums T (2001) Bericht der Regierugskommission Corporate Governance. Otto Schmidt, Köln.
15. Bäurle I (1996): Krise der Aufsichtsratstätigkeit: welchen Beitrag leistet die Agency-Theorie? Working paper, Ingolstadt.
16. Beatty RP, Zajac EJ (1994) Top management incentives, monitoring, and risk sharing: a study of executive compensation, ownership and board structure in initial public offerings. Adm Sci Q 39: 313-336.
17. Bebchuk LA, Jesse MF, David IW (2002) Managerial power and rent extraction in the design of executive compensation. Univ Chicago Law Rev 69: 751-846.
18. Bebchuk L, Grinstein Y, Peyer U (2007) Lucky directors. Working paper, Cambridge.
19. Becher DA, Campbell TL, Frye MB (2005) Incentive compensation for bank directors: the impact of deregulation. J Bus 78: 1753-1777.
20. Beiner S, Schmid MM, Wanzenried G (2009) Product market competition, managerial incentives and firm valuation. Eur Financ Manag. doi: 10. 1111/j. 1468-036X. 2009. 00505. x.
21. Berle AA, Means GC (1932) The modern corporation and private property. Harcourt, Brace and World, New York.
22. Bertrand M, Mullainathan S (2003) Enjoying the quit life? Corporate governance and managerial preferences. J Polit Econ 111: 1043-1075.
23. Black B, Bhagat S (2002) The non-correlation between board independence and long-term firm performance. J Corp Law 27: 231-274.
24. Böcking HJ (2004) Prüfungsausschuss und Aufsichtsratsvergütung-Elemente einer verantwortungsvollen Corporate Governance. In: Lange TA, Löw E (eds) Rechnungslegung, Steuerung und Aufsicht von Banken: Kapitalmarktorientierung und Internationalisierung. Gabler, Wiesbaden, pp 564-588.
25. Börsch-Supan A, Köke J (2002) An applied econometricians' view of empirical corporate governance studies. Ger Econ Rev 3: 295-326.
26. Boyd BK (1996) Determinants of US outside director compensation. Corp Gov 4: 202-211.
27. Brandes P, Hadani M, Goranova M (2006) Stock options expensing: an examination of agency and institutional theory explanations. J Bus Res 59: 595-603.
28. Bresser RK, Thiele RV (2008) Ehemalige Vorstandsvorsitzende als Aufsichtsratschefs: Evidenz zu ihrer Effektivität im Falle des erzwungenen Führungswechsels. ZfB 78: 175-203.
29. Breusch TS, Pagan AR (1980) The Lagrange multiplier test and its applications to model specification in econometrics. Rev Econ Stud 47: 239-253.
30. Brick IE, Palmon O, Wald JK (2006) CEO compensation, director compensation, and firm performance: evidence or cronyism? J Corp Financ 12: 403-423.
31. Bruce A, Buck T, Main BG (2005) Top executive remuneration: a view from Europe. J Manag Stud 42: 1493-1506.
32. Bryan S, Klein A (2004) Non-management director options, board characteristics, and future firm investments and performance. Working paper, New York.
33. Bryan S, Hwang LS, Klein A (2000) Compensation of outside directors: an empirical analysis of economic determinants. Working paper, New York.
34. Bryan S, Nash R, Patel A (2006) Can the agency costs of debt and equity explain the changes in executive compensation during the 1990s? J Corp Financ 12: 516-535.
35. Cameron AC, Trivedi P (2005) Microeconometrics: methods and applications. Cambridge University Press, New York.
36. Carpenter MA, Westphal JD (2001) The strategic context of external network ties: examining the impact of director appointments on board involvement in strategic decision making. Acad Manag J 44: 639-660.
37. Chatterjee S, Price B (1977) Regression analysis by example. Wiley, New York.
38. Chizema A (2008) Institutions and voluntary compliance: the disclosure of individual executive pay in Germany. Corp Gov 16: 359-374.
39. Chizema A (2010) Early and late adoption of American-style executive pay in Germany: governance and institutions. J World Bus 45: 9-18.
40. Chizema A, Buck T (2006) Neo-institutional theory and institutional change: towards the 'Americanization' of German executive pay practice. Int Bus Rev 15: 488-504.
41. Conyon MJ, Schwalbach J (2000) Executive compensation: evidence from the UK and Germany. LRP 33: 504-526.
42. Conyon MJ, Peck SI, Sadler GV (2001) Corporate tournaments and executive compensation: evidence for the UK. Strateg Manag J 22: 805-815.
43. Cordeiro J, Veliyath R, Eramus EJ (2000) An empirical investigation of the determinants of outside director compensation. Corp Gov 8: 268-279.
44. Core J, Holthausen R, Larcker D (1999) Corporate governance, chief executive officer compensation, and firm performance. J Financ Econ 51: 371-406.
45. Cronqvist H, Fahlenbrach R (2009) Large shareholders and corporate policies. Rev Financ Stud 22: 3941-3976.
46. Davidson R, MacKinnon J (1993) Estimation and inference in econometrics. Oxford University Press, New York.
47. Davis JH, Schoorman FD, Donaldson L (1997) Toward a stewardship theory of management. Acad Manag Rev 22: 20-47.
48. Deutsch Y (2007) The influence of outside directors' stock compensation on firms R& D. Corp Gov 15: 816-827.
49. DiMaggio PJ, Powell WW (1983) The iron cage revisited: institutional isomorphism and collective rationality in organizational fields. Am Sociol Rev 48: 147-160.
50. Dittmann I, Maug E (2007) Lower salaries and no options? On the optimal structure of executive pay. J Financ 62: 303-343.
51. Donaldson L, Davis JH (1991) Stewardship theory or agency theory: CEO governance and shareholder returns. Aust J Manag 16: 49-64.
52. Donaldson L, Davis JH (1994) Boards and firm performance-research challenges the conventional wisdom. Corp Gov 2: 151-160.
53. Eisenberg T, Sundgren S, Wells M (1998) Larger board size and decreasing firm value in small firms. J Financ Econ 48: 35-54.
54. Elsas R, Florysiak D (2008) Empirical capital structure research: new ideas, recent evidence, and methodological issues. Working paper, Munich.
55. Elston JA, Goldberg LG (2003) Executive compensation and agency costs in Germany. J Bank Financ 27: 1391-1410.
56. Engel E, Hayes RM, Wang X (2010) Audit committee compensation and the demand for monitoring of the financial reporting process. J Acc Econ 49: 136-154.
57. Engeser M (2009) Blick nach vorn: Welche Herausforderungen 2010 auf Top-Manager warten. Wirtschaftswoche No 52: 92-96.
58. Ertugrul M, Hegde S (2008) Board compensation practices and agency cost of debt. J Corp Financ 14: 512-531.
59. Fahlenbrach R (2009) Shareholder rights, boards, and CEO compensation. Rev Financ 13: 81-113.
60. Fallgatter MJ (2003) Variable Vergütung von Mitgliedern des Aufsichtsrates: Resultiert eine verbesserte Unternehmensüberwachung? DBW 63: 703-713.
61. Fallgatter MJ, Simons D (2003) Zum Überwachungsgefüge deutscher Kapitalgesellschaften-Eine anreiztheoretische Analyse der Vergütung, Haftung und Selbstverpflichtung des Aufsichtsrates. Working paper, Bielefeld.
62. Fama EF (1980) Agency problems and the theory of the firm. J Polit Econ 88: 288-307.
63. Fama EF, French KR (1997) Industry costs of equity. J Financ Econ 43: 153-193.
64. Fama EF, Jensen MC (1983) Separation of ownership and control. J Law Econ 26: 301-325.
65. Farrell KA, Friesen GC, Hersch PL (2008) How do firms adjust director compensation. J Corp Financ 14: 153-162.
66. Ferrarini G, Moloney N, Ungureanu MC (2009) Understanding directors' pay in Europe: an comparative and empirical analysis. Working paper, Brussels.
67. Ferris SP, Jagannathan M, Pritchard AC (2003) Too busy to mind the business? Monitoring by directors with multiple board appointments. J Financ 59: 1087-1111.
68. Fich EM, Shivdasani A (2005) The impact of stock option compensation for outside directors on firm value. J Bus 78: 2229-2254.
69. Fich EM, Shivdasani A (2006) Are busy boards effective monitors? J Financ 61: 689-724.
70. Fockenbrock D (2009) Im Geflecht der Kontrolleure. Handelsblatt, 4 Nov 2009, pp 32-33.
71. Gillette AB, Noe TH, Rebello MJ (2003) Corporate board composition, protocols, and voting behavior: experimental evidence. J Financ 58: 1997-2032.
72. Giroud X, Mueller HM (2010) Does corporate governance matter in competitive industries? J Financ Econ 95: 312-331.
73. Goergen M, Manjon MC, Renneboog L (2008) Is the German system of corporate governance converging towards the Anglo-American model? J Manage Gov 12: 37-71.
74. Granovetter M (1985) Economic action and social structure: the problem of embeddedness. Am J Sociol 19: 481-510.
75. Greene WH (2003) Econometric analysis, 5th edn. Prentice Hall, Upper Saddle River.
76. Grosfeld I, Tressel T (2002) Competition and ownership structure: substitutes or complements? Econ Transit 10: 525-551.
77. Grossman SJ, Hart OD (1983) An analysis of the principal-agent problem. Econometrica 51: 7-45.
78. Hartmann K (2003) Die Aufsichtsratsvergütung als Erfolgsfaktor im deutschen corporate-governance-system. Dissertation, Otto-von-Guerike University, Magdeburg.
79. Hartzell JC, Starks LT (2003) Institutional investors and executive compensation. J Financ 58: 2351-2374.
80. Hausman JA (1978) Specification tests in econometrics. Econometrica 46: 1251-1271.
81. Heide JB (1994) Interorganizational governance in marketing channels. J Mark 58: 71-85.
82. Heinze T (2004) Dynamics in the German system of corporate governance? Empirical findings regarding interlocking directorates. Econ Soc 33: 218-238.
83. Hempel P, Fay C (1994) Outside director compensation and firm performance. Hum Resour Manag 33: 111-133.
84. Hermalin BE, Weisbach MS (1998) Endogenously chosen boards of directors and their monitoring of the CEO. Am Econ Rev 88: 96-118.
85. Heugens PP, Lander MW (2009) Structure! Agency! (and other quarrels): a meta-analysis of institutional theories of organization. Acad Manag J 52: 61-85.
86. Hillman AJ, Nicholson G, Shropshire C (2008) Directors' multiple identities, identification, and board monitoring and resource provision. Organ Sci 19: 441-456.
87. Himmelberg CP, Hubbard RG, Palia D (1999) Understanding the determinants of managerial ownership and performance. J Financ Econ 53: 333-384.
88. Hoetker G (2007) The use of logit and probit models in strategic management research: critical issues. Strateg Manag J 28: 331-343.
89. Holderness CG (2003) A survey of blockholders and corporate control. FRBNY Econ Policy Rev 9: 51-64.
90. Hung H (1998) A typology of the theories of the roles of governing boards. Corp Gov 6: 101-111.
91. Januszweski SI, Köke J, Winter JK (2002) Product market competition, corporate governance and firm performance: an empirical analysis for Germany. Res Econ 56: 299-332.
92. Jensen MC (1986) Agency costs of free cash flow, corporate finance and takeovers. Am Econ Rev 76: 323-329.
93. Jensen MC (1993) The modern industrial revolution, exit, and the failure of internal control systems. J Financ 48: 831-880.
94. Jensen MC, Meckling WH (1976) Theory of the firm: managerial behaviour, agency costs and ownership structure. J Financ Econ 3: 305-360.
95. Jensen MC, Murphy KJ (1990) Performance pay and top-management incentives. J Polit Econ 98: 225-264.
96. Jensen MC, Murphy KJ (2004) Renumeration: where we've been, how we got there, what are the problems, and how to fix them. Working paper, Brussels.
97. Jensen MC, Zajac EJ (2004) Corporate elites and corporate strategy: how demographic preferences and structural position shape the scope of the firm. Strateg Manag J 25: 507-524.
98. Judge WQ, Zeithaml CP (1992) Institutional and strategic choice perspectives on board involvement in the strategic decision process. Acad Manag J 35: 766-794.
99. Jungmann C (2006) The effectiveness of corporate governance in one-tier and two-tier board systems-evidence from the UK and Germany. Eur Co Financ Law Rev 3: 426-474.
100. Kaserer C, Wagner N (2004) Determinanten der Vorstandsvergütung in Deutschland: Paradigmenwechsel oder Versagen der Unternehmenskontrolle. Working paper, Munich.
101. Knoll L, Knoesel J, Probst U (1997) Aufsichtsratsvergütungen in Deutschland: Empirische Befunde. Zfbf 49: 236-254.
102. Kren L, Kerr JL (1997) The effects of outside directors and board shareholdings on the relation between chief executive compensation and firm performance. Account Bus Res 27: 297-309.
103. Kumar P, Sivaramakrishnan K (2008) Who monitors the monitor? The effect of board independence on executive compensation and firm value. Rev Financ Stud. doi: 10. 1093/rfs/hhn010.
104. Lesaffre E, Spiessens B (2001) On the effect of the number of quadrature points in a logistic random-effects model: an example. J R Stat Soc 50: 325-335.
105. Linck JS, Netter JM, Yang T (2008) The determinants of board structure. J Financ Econ 87: 308-328.
106. Linn SC, Park D (2005) Outside director compensation policy and the investment opportunity set. J Corp Financ 11: 680-715.
107. Lipton M, Lorsch J (1992) A modest proposal for improved corporate governance. Bus Lawyer 48: 59-77.
108. Long JS, Freese J (2006) Regression models for categorial and limited dependent variables using Stata, 2nd edn. Stata Press, College Station.
109. Lutter M (2001) Der Aufsichtsrat: Kontrolleur oder Mit-Unternehmer? In: Sadowski D (ed) Entrepreneurial spirits. Gabler, Wiesbaden, pp 225-235.
110. Martens K (2000) Managementüberwachung durch den Aufsichtsrat: Ein Beitrag zur Corporate Governance-Diskussion aus agencytheoretischer Sicht. Dissertation, University of Cologne.
111. Maug E (1997) Boards of directors and capital structure. J Corp Financ 3: 113-139.
112. Minnick K, Zhao M (2009) Backdating and director incentives: money or reputation? J Financ Res 32: 449-477.
113. Moerland P (1995) Alternative disciplinary mechanisms in different corporate systems. J Econ Behav Organ 26: 17-34.
114. Morck R, Shleifer A, Vishny R (1988) Management ownership and market valuation: an empirical analysis. J Financ Econ 20: 293-315.
115. Mundlak Y (1978) On the pooling of time series and cross sectional data. Econometrica 56: 69-86.
116. Murphy K (1985) Corporate performance and managerial remuneration: an empirical analysis. J Acc Econ 7: 11-42.
117. Nickell SJ (1996) Competition and corporate performance. J Polit Econ 104: 724-746.
118. Nowak E (2001) Recent developments in German capital markets and corporate governance. J Appl Corp Financ 14: 35-48.
119. Nowak E, Mahr T, Rott R (2005) Wer den Kodex nicht einhält, den bestraft der Kapitalmarkt? Eine empirische Analyse der Selbstregulierung und Kapitalmarktrelevanz des Deutschen Corporate Governance Kodex. ZGR 34: 252-279.
120. O′Reilly CA III, Main BG, Crystal GS (1988) CEO compensation as tournament and social comparison: a tale of two theories. Adm Sci Q 33: 257-274.
121. Oehmichen J, Rapp MS, Wolff M (2009) Busy boards in a two-tier system: old-boys network or efficient monitoring technology. Eur Econ Assoc. Annual meeting 2009 paper.
122. Ornstein M (1984) Interlocking directorates in Canada: intercorporate or class alliance? Adm Sci Q 29: 210-231.
123. Perry T (1999) Incentive compensation for outside directors and CEO turnover. Working paper, Tempe.
124. Petersen MA (2008) Estimating standard errors in finance panel data sets: comparing approaches. Rev Financ Stud 22: 435-480.
125. Pfeffer J (1972) Size and composition of corporate boards of directors: the organization and its environment. Adm Sci Q 17: 218-228.
126. Pfeffer J, Salancik GR (1978) The external control of organizations: a resource dependence perspective. Harper and Row, New York.
127. Prange S (2009) Aufsichtsrat Ahnungslos. Handelsblatt, 10 Jul 2009, p 19.
128. Pugliese A, Bezemer PJ, Zattoni A et al (2009) Boards of directors' contribution to strategy: a literature review and research agenda. Corp Gov 17: 292-306.
129. Rabe-Hesketh S, Skrondal A (2008) Multilevel and longitudinal modeling using stata, 2nd edn. Stata Press, College Station.
130. Rabe-Hesketh S, Skrondal A, Pickles A (2005) Maximum likelihood estimation of limited and discrete dependent variable models with nested random effects. J Econometrics 128: 301-323.
131. Rapp MS, Wolff M (2010) Determinanten der Vorstandsvergütung-eine empirische Untersuchung der deutschen Prime Standard Unternehmen. ZfB (forthcoming).
132. Ruiz-Verdú P (2008) Corporate governance when managers set their own pay. Eur Financ Manag 14: 921-943.
133. Ryan HE, Wiggins RA (2004) Who is in whose pockets? Director compensation, board independence, and barriers to effective monitoring. J Financ Econ 74: 497-524.
134. Schmid FA (1997) Vorstandsbezüge, Aufsichtsratsvergütung und Aktionärsstuktur. ZfB 67: 67-83.
135. Schmidt KM (1997) Managerial incentives and product market competition. Rev Econ Stud 64: 191-213.
136. Schmidt R, Schwalbach J (2007) Zu Höhe und Dynamik der Vorstandsvergütung in Deutschland. ZfB Special Issue I: 111-122.
137. Schöndube-Pirchegger B, Schöndube JR (2010) On the appropriateness of performance-based compensation for supervisory board members-an agency theoretic approach. Eur Acc Rev. doi: 10. 1080/09638180903487784.
138. Schwalbach J (2004) Effizienz des Aufsichtsrats. Die Aktiengesellschaft 4: 186-190.
139. Scott WR (2003) Organizations: rational, natural and open systems, 5th edn. Prentice Hall, Upper Saddle River.
140. Seyboth M (2003) Angemessene Vorstands-und Aufsichtsratsvergütungen. In: Gewerkschaftsbund D (ed) Themenheft Mitbestimmung und Rechtspolitik. DGB, Berlin, pp 6-26.
141. Shleifer A, Vishny RW (1997) A survey of corporate governance. J Financ 52: 737-783.
142. Siegel T (2003) Kriterien der Vergütung des Aufsichtsrats. In: von Werder A, Wiedmann K (eds) Internationalisierung der Rechnungslegung und Corporate Governance: Festschrift für Prof. Dr. Klaus Pohle. Schäffer-Poeschel, Stuttgart, pp 405-418.
143. Smith C, Watts R (1992) The investment opportunity set and corporate financing, dividend, and compensation policies. J Financ Econ 32: 263-292.
144. Speidel E, Ward M, Surdel R (2009) Board of director pay: compensation trends in the high-technology and life sciences industries. Compens Benefit Rev 41: 52-60.
145. Theisen MR (2003a) Herausforderung corporate governance. DBW 63: 441-464.
146. Theisen MR (2003b) Aufsichtsrat/Board: Aufgaben, Besetzung, Organisation, Entscheidungsfindung und Willensbildung-Betriebwirtschaftliche Ausfüllung. In: Hommelhoff P, Hopt KJ, von Werder A (eds) Handbuch corporate governance. Schäffer-Poeschel, Stuttgart, pp 285-304.
147. Tirole J (1986) Hierarchies and Bureaucracies: on the role of collusion in organizations. J Law Econ Organ 2: 181-214.
148. Vafeas N (1999) Determinants of the adoption of director incentive plans. J Acc Audit Financ 14: 453-474.
149. Velte P (2009) Stewardship-Theorie. ZP. doi: 10. 1007/s00187-009-0078-3.
150. von Werder A, Talaulicar T (2008) Kodex Report 2008: Die Akzeptanz der Empfehlungen und Anregungen des Deutschen Corporate Governance Kodex. Der Betrieb 61: 825-831.
151. Webster J, Watson RT (2002) Analyzing the past to prepare for the future: writing a literature review. MIS Q 26: xiii-xxiii.
152. Westphal J, Zajac EJ (1994) Substance and symbolism in CEOs' long-term incentive plans. Adm Sci Q 39: 367-390.
153. Wiersema MF, Bowen HP (2009) The use of limited dependent variable techniques in strategy research: issues and methods. Strateg Manag J 30: 679-692.
154. Williamson OE (1984) Corporate governance. Yale Law J 93: 1197-1230.
155. Wooldridge JM (2002) Econometric analysis of cross section and panel data. MIT Press, Cambridge.
156. Yermack D (1995) Do corporations award CEO stock options effectively? J Financ Econ 39: 237-269.
157. Yermack D (2004) Remuneration, retention, and reputation incentives for outside directors. J Financ 59: 2281-2308.
158. Zajac EJ, Westphal JD (1994) The costs and benefits of managerial incentives and monitoring in large US corporations: when is more not better? Strateg Manag J 15: 121-142.
159. Zelner BA (2009) Using simulation to interpret results from logit, probit, and other nonlinear models. Strateg Manag J. doi: 10. 1002/smj783.
160. Zhou X (2001) Understanding the determinants of managerial ownership and the link between ownership and performance: comment. J Financ Econ 62: 559-571.