Court Intervention as a Governance Mechanism over CEO Pay: Evidence from the Citigroup Derivative Lawsuit

Court Intervention as a Governance Mechanism over CEO Pay: Evidence from the Citigroup Derivative Lawsuit

We use an unanticipated court ruling in a lawsuit against Citigroup claiming corporate waste related to CEO pay to analyse court intervention as an alternative governance mechanism in cases of excess pay. We find a negative relation between announcement returns and excess pay, consistent with shareh...

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Veröffentlicht in:The European accounting review 2015-10, Vol.24 (4), p.637-658
Hauptverfasser: Albuquerque, Ana M., Carter, Mary Ellen, Lynch, Luann J.
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Sprache:eng
Schlagworte:
Court decisions
Executive compensation
Litigation
State court decisions
Stockholders
Studies
Unreasonable compensation
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container_title The European accounting review
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creator Albuquerque, Ana M.
Carter, Mary Ellen
Lynch, Luann J.
description We use an unanticipated court ruling in a lawsuit against Citigroup claiming corporate waste related to CEO pay to analyse court intervention as an alternative governance mechanism in cases of excess pay. We find a negative relation between announcement returns and excess pay, consistent with shareholders of these firms perceiving court intervention as net costly. However, we find a positive relation between announcement returns and excess pay accompanied by poor performance, suggesting that intervention is welcome when pay is more egregious. Finally, we find that firms with excess pay and whose shareholders welcome intervention reduce future pay relative to other firms, suggesting that the threat of court intervention is a potential mechanism to control excess pay.
doi_str_mv 10.1080/09638180.2014.937348
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subjects Court decisions
Executive compensation
Litigation
State court decisions
Stockholders
Studies
Unreasonable compensation
title Court Intervention as a Governance Mechanism over CEO Pay: Evidence from the Citigroup Derivative Lawsuit
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