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Article
Publication date: 9 April 2020

H. Leon Chan, Brett Kawada, Taekjin Shin and Jeff Wang

This study aims to examine whether the pay gap between the chief executive officer (CEO) and non-executive employees affects the firm’s research and development (R&D) efficiency…

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Abstract

Purpose

This study aims to examine whether the pay gap between the chief executive officer (CEO) and non-executive employees affects the firm’s research and development (R&D) efficiency.

Design/methodology/approach

The dependent variable is the firm’s R&D efficiency, defined as a percentage increase in revenue from a 1-per cent increase in R&D spending. The main independent variable is the CEO-employee pay gap, defined as the ratio of annual total compensation for the CEO to the average of non-executive employees of the firm. The authors estimate fixed-effects models to examine the association between R&D efficiency and the pay gap between CEO and non-executive employees.

Findings

Results indicate a negative and significant association between R&D efficiency and CEO-employee pay gap, which suggests that a wider pay gap reduces employee motivation and effort, consistent with pay equity theory. We also find that the CEO-employee pay gap negatively moderates the relationship between employee pay growth and R&D efficiency

Research limitations/implications

Recently enacted pay gap disclosure requirements mandated by the Dodd-Frank Act will make the disparity between CEO and non-executive compensation more salient. This study provides evidence of a firm outcome associated with that disparity.

Originality/value

This study is among the first to investigate the impact of the pay gap on R&D efficiency, a firm outcome not previously explored in the literature. This study also investigates CEO-employee pay gap’s role as a factor that moderates the effects of employee pay growth and institutional ownership on R&D efficiency

Details

Review of Accounting and Finance, vol. 19 no. 2
Type: Research Article
ISSN: 1475-7702

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Publication date: 12 June 2017

Taekjin Shin

In this study, I explore the link between workforce downsizing and the predominance of a corporate governance model that espouses a shareholder value maximization principle…

Abstract

In this study, I explore the link between workforce downsizing and the predominance of a corporate governance model that espouses a shareholder value maximization principle. Specifically, I examine how top managers’ shareholder value orientation affects the adoption of a downsizing strategy among large, publicly traded corporations in the United States. An analysis of CEOs’ letters to shareholders indicates that firms with CEOs who use language that espouses the shareholder value principle tend to have a higher rate of layoffs, after controlling for various indicators of the firm’s adherence to the shareholder value principle. The finding suggests that corporate governance models, particularly those advocated by powerful organizational elites, have a significant impact on workers by shaping corporate strategies toward the workforce. The key actors in this process were top managers who embraced the new management ideology and implemented corporate strategy to pursue shareholder value maximization.

Details

Emerging Conceptions of Work, Management and the Labor Market
Type: Book
ISBN: 978-1-78714-459-0

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Available. Content available
Book part
Publication date: 12 June 2017

Abstract

Details

Emerging Conceptions of Work, Management and the Labor Market
Type: Book
ISBN: 978-1-78714-459-0

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Article
Publication date: 1 November 2024

Valerie Li and Lin Wang

Executive turnover has increased in recent years. Most studies of executive turnover focus on CEO turnover and treat each incident of turnover as an isolated event. This research…

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Abstract

Purpose

Executive turnover has increased in recent years. Most studies of executive turnover focus on CEO turnover and treat each incident of turnover as an isolated event. This research considers both CEO and CFO turnover and investigates whether the frequency of executive turnover has distinct effects on financial reporting quality.

Design/methodology/approach

The authors use a sample of firms extracted from Execucomp from the 1992 to 2021 period and examine three important indicators of firm’s accounting information quality: earning persistence; earnings informativeness; and accrual earnings management.

Findings

The authors find that higher frequency of executive turnovers in a 5-year period is associated with lower financial reporting quality. Specifically, the authors find that the frequency of executive turnovers is negatively associated with earnings persistence and positively associated with accrual earnings management, especially income-increasing accrual earnings management. Furthermore, the authors find that the frequencies of CEO-only turnover and combined CEO and CFO turnover, but not CFO-only turnover, are negatively associated with earnings informativeness about future cash flows. In addition, the authors find some evidence that promoting executives internally weakens the negative effect of frequent executive turnover on financial reporting quality.

Practical implications

The results suggest that while change is sometimes inevitable, frequent executive changes can create a short-horizon problem and make the realization of adaptation effects of leadership change difficult, and hence hurt company’s performance. The study suggests that organizations, especially corporate board should have robust and effective change management systems and strategies in place, which can help to mitigate the negative effect of frequent executive changes and align firms’ operations with the new leadership’s vision, maintain operational continuity, and employee engagement during periods of transition.

Originality/value

The study contributes to the management turnover literature by examining the impact of executive turnover frequency on firms’ financial reporting quality. While previous studies primarily rely on binary variables to measure management turnover, this study is among the first that focuses on the frequency of executive turnover, thus capturing more nuanced information beyond the scope of a binary variable. This measure allows the authors to focus on the disruptive effect of executive turnover, and hence better disentangles the distinct effects that multiple executive turnovers have on firm performance, which can differ from the effect of individual turnover. This distinction is crucial because the adaptation effect from executive turnover may not have adequate time to materialize within the context of several short executive tenures. The authors provide evidence that the disruptive effect manifests more strongly in firms with a higher rate of executive turnover and such disruption deteriorates firms’ financial reporting quality.

Details

Journal of Accounting Literature, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-4607

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