Legal institutional variation and top executive pay: empirical evidence

• Applicant: Dr. Steffen Brenner
• Subject Area: Accounting and Finance
• Term: from 2007 to 2009
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 62341414

Recent research devotes increasing attention to the relation between the institutional environment of a country and its economic performance. We consider the question whether differences in legal institutions help explaining why the organization of companies differs across countries. We select one important dimension of corporate organization: the level and structure of top level management compensation. In particular, we address two issues. 1) We examine how CEO pay is affected by minority shareholder protection. Shareholder protection may directly affect CEO pay by changing the balance of power between managers and investors, or indirectly by influencing capital market conditions and the ownership structure of the firms. 2) We analyze the empirical importance of insider trading regulation as a compensation mechanism for top executives. Both sets of legal rules have clearly articulated goals. We will examine whether the economic effects of these laws are congruent to these goals.

• DFG Programme: Research Grants