Reputation penalties for poor monitoring of executive pay: Evidence from option backdating

Yonca Ertimur, Fabrizio Ferri, David A. Maber

Research output: Contribution to journalArticlepeer-review

63 Scopus citations

Abstract

We study whether outside directors are held accountable for poor monitoring of executive compensation by examining the reputation penalties to directors of firms involved in the option backdating (BD) scandal of 2006-2007. We find that, at firms involved in BD, significant penalties accrued to compensation committee members (particularly those who served during the BD period) both in terms of votes withheld when up for election and in terms of turnover, especially in more severe cases of BD. However, directors of BD firms did not suffer similar penalties at non-BD firms, raising the question of whether reputation penalties for poor oversight of executive pay are large enough to affect the ex ante incentives of directors.

Original languageEnglish (US)
Pages (from-to)118-144
Number of pages27
JournalJournal of Financial Economics
Volume104
Issue number1
DOIs
StatePublished - Apr 1 2012
Externally publishedYes

Keywords

  • Corporate governance
  • Director labor market
  • Director turnover
  • Option backdating
  • Shareholder voting

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Fingerprint Dive into the research topics of 'Reputation penalties for poor monitoring of executive pay: Evidence from option backdating'. Together they form a unique fingerprint.

Cite this