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Directors' Pay and Turnover: An Application to a Sample of Large UK Firms

Research output: Contribution to journalJournal article

Published
<mark>Journal publication date</mark>11/1998
<mark>Journal</mark>Oxford Bulletin of Economics and Statistics
Issue number4
Volume60
Number of pages23
Pages (from-to)485-507
Publication StatusPublished
<mark>Original language</mark>English

Abstract

This paper examines the operation of the UK managerial labour market. We test the twin agency predictions that directors' pay is positively related to corporate performance and CEO turnover is negatively associated with firm profitability. We find that (i) the panel data econometric evidence reveals a significant and positive correlation between directors' pay, company performance and size, (ii) the CEO turnover model predicts a negative, and significant, association with pre-dated shareholder returns: the data is consistent with the view that CEOs are disciplined by the threat of dismissal, (iii) boardroom governance factors (e.g. proportion of non-executives and board size) are only of some importance in the CEO succession process.