The Impact of Independent and Overlapping Board Structures on CEO Compensation, Pay-Performance Sensitivity and Accruals Management

Due to SOX, new rules that require independent directors on corporate boards and committees are likely to result in overlapping board structure (directors serving on more than one committee). The purpose of this study is to examine the effects of independent and overlapping board structures on CEO c...

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Bibliographic Details
Published in:Quarterly journal of finance and accounting 2011-03, Vol.50 (2), p.54-84
Main Authors: Chang, Jui-Chin, Luo, Mi, Sun, Huey-Lian
Format: Article
Language:English
Subjects:
Analysis
Audit committees
Business structures
Chief executive officers
Committees
Compensation and benefits
Compensation management
Control variables
Creative accounting
Executive compensation
Executives
Financial disclosure
Financial management
Financial reporting
Laws, regulations and rules
Management audits
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Summary:Due to SOX, new rules that require independent directors on corporate boards and committees are likely to result in overlapping board structure (directors serving on more than one committee). The purpose of this study is to examine the effects of independent and overlapping board structures on CEO compensation, CEO pay-performance sensitivity, and accruals management. Our results support Laux and Laux (2009) that overlapping compensation committees take conservative actions by granting CEOs less equity-based compensation to reduce monitoring cost of financial reporting. However, we do not find that overlapping compensation committees have any effect on CEO pay-performance sensitivity. Furthermore, our results show that SOX might reduce CEOs' risk taking because independent compensation committees grant CEOs more cash-based and less equity-based compensation after SOX. In addition, although SOX improves the independent audit committee's oversight functions, our findings support Laux and Laux (2009) that overlapping audit committees have an association with accruals management.
ISSN:1939-8123