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Deferred compensation for outside directors in Canada : antecedents and consequences

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Deferred compensation for outside directors in Canada : antecedents and consequences

Khalil, Samer (2005) Deferred compensation for outside directors in Canada : antecedents and consequences. PhD thesis, Concordia University.

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Abstract

This thesis investigates the antecedents and consequences from adopting deferred compensation plans in corporate boardrooms. It focuses on the compensation paid to a class of directors, outside directors, that is mainly entrusted with monitoring managerial decision making, in addition to compensating, hiring, and firing top executives when circumstances warrant. Outside directors' compensation came under extreme scrutiny following the recent scandals and accounting irregularities in corporate America. Various stakeholders note that cash compensation does not lead to an effective monitoring of top management resulting in a significant trend toward equity based pay at the board level. Relying on agency and institutional theories, I develop a theoretical framework (chapter 4) to investigate the antecedents and consequences from adopting a deferred share unit plan for outside directors in Canada. From an agency perspective, I hypothesize that the adoption decision depends on the agency problem at the board level, and the ownership structure of the firm. I further hypothesize that the adoption results in a positive stock market reaction that varies with the degree to which the share unit plan resolves this problem. Within an institutional perspective, I propose that the adoption decision is associated with the institutional pressures a firm faces. I also hypothesize that adopting firms record positive abnormal returns with a magnitude that varies with the adopting firm category (early versus late adopter) and the theoretical perspective used to disclose the adoption decision. Three essays provide evidence as follows. The first essay (chapter 5) includes a case study that investigates the antecedents and consequences in 11 firms operating in three different industries. The second essay (chapter 6) uses logit analysis to compare the agency and institutional characteristics of a sample of 123 adopting firms to that of a control sample matched based on firm size and industry. The third essay (chapter 7) relies on standard event study methodology and multiple regression analysis to examine the stock market reaction around the adoption announcement date. Consistent with my propositions, results show that the likelihood of adoption is higher in firms that have a stronger moral hazard at the board level and in firms facing significant mimetic and normative pressures. Results also show that adopting firms record positive abnormal returns around the adoption announcement date that vary with the plans' attributes. These findings highlight the importance of integrating both economic and social perspectives when examining the antecedents and consequences from adopting organizational compensation practices

Divisions:Concordia University > John Molson School of Business
Item Type:Thesis (PhD)
Authors:Khalil, Samer
Pagination:xiv, 133, [19] leaves : ill. ; 29 cm.
Institution:Concordia University
Degree Name:Ph. D.
Program:John Molson School of Business
Date:2005
Thesis Supervisor(s):Magnan, Michel
ID Code:8798
Deposited By:Concordia University Libraries
Deposited On:18 Aug 2011 14:35
Last Modified:18 Aug 2011 15:10
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