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Title: Sales Growth, CEO Pay, and Corporate Governance in India
Authors: Jaiswall, Sudhir Shiv Kumar
Raman, Krishnamurthy K.
Keywords: CEO compensation
CEO power
Corporate governance
Sales growth
Issue Date: 2019
Publisher: SCOPUS
Journal of Accounting, Auditing and Finance
SAGE Publications Ltd
Abstract: Although stock return-based performance metrics are common in CEO compensation contracts in the United States, similar CEO pay arrangements may not be appropriate in India given higher stock return volatility and lower liquidity. Instead, sales growth as a performance metric could be useful in incentivizing Indian CEOs to pursue earnings growth consistent with shareholder value maximization. In this study, we examine the use of sales growth as a performance metric in extant Indian CEO pay arrangements and whether the usage is consistent with efficiency. Our findings suggest that the weight placed on sales growth in determining CEO compensation in India is positive and is higher for more powerful CEOs. We also find that board vigilance is effective in moderating the weight placed on sales growth in CEO pay arrangements. Finally, we show that the weight placed on sales growth in assessing CEO pay negatively impacts future firm performance, particularly for firms that are in the later stages of the firm life cycle, are less profitable, and have weaker shareholder monitoring. Collectively, our findings are consistent with inefficiency (efficiency) in CEO pay contracting in the use of sales growth as a performance metric in later (early) stage firms, less (more) profitable firms, and weaker (stronger) shareholder monitoring firms. More broadly, our findings albeit India-specific are of potential interest to CEO pay arrangement debates in the United States and elsewhere where sales growth is an important performance metric in determining CEO compensation. � The Author(s) 2019.
Description: Jaiswall, Sudhir Shiv Kumar, Indian Institute of Management Calcutta, India; Raman, Krishnamurthy K., The University of Texas at San Antonio, United States
ISSN/ISBN - 0148558X
DOI - 10.1177/0148558X19825672
Appears in Collections:Finance and Control

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