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CEO Tournaments: A Cross-Country Analysis of Causes, Cultural Influences, and Consequences

Published online by Cambridge University Press:  21 April 2017

Natasha Burns ,
Kristina Minnick  and
Laura Starks
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Abstract

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Using a cross-country sample, we examine the chief executive officer (CEO) tournament structure (measured alternatively as the ratio and the difference of pay between the CEO and other top executives within a firm). We find the tournament structure to vary systematically with firm and country cultural characteristics. In particular, firm size and the cultural values of power distance, fair income differences, and competition are significantly associated with variations in tournament structures. We also establish support for the primary implication of tournament theory in that tournament structure tends to be positively related to firm value, even after controlling for endogeneity.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 2 , April 2017 , pp. 519 - 551
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

Footnotes

1

We thank Hank Bessembinder, Wayne Ferson, Ron Giammarino, Jarrad Harford (the editor), Jay Hartzell, Mike Hertzel, Mark Huson, Jayant Kale (the referee), Arun Upadhyay, and John Wald, as well as participants at the 2012 University of Alberta Frontiers in Finance conference, the 2012 Eastern Finance Association conference, the 2014 Finance Down Under conference, the 2013 Financial Management Association conference, the 2012 Midwest Finance Association conference, the 2014 European Financial Management Association conference, and seminars at Bentley University, Erasmus University, and the U.S. Securities and Exchange Commission. Burns acknowledges support from the UTSA College of Business summer research grant. Tim Krause provided excellent research assistance.

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