Executive Remuneration and Corporate Divestment: Motivating Managers to Make Unpalatable Decisions

27 Pages Posted: 11 Jul 2007

See all articles by Michelle Haynes

Michelle Haynes

University of Nottingham

Mike Wright

Nottingham University Business School

Steve Thompson

Nottingham University Business School (NUBS)

Abstract

This study examines the impact of voluntary divestment on executive remuneration, using an unbalanced panel of 107 UK quoted companies over the period 1988 to 1993. It employs a dynamic compensation equation, with a vector of controls and alternative specifications of the divestment effect. The results show no general direct evidence of a remuneration process that rewards managers for downsizing their firms. Indeed the substantial pay-size elasticity implies the reverse. However, divestment does have a positive and significant effect in raising executive remuneration under a regime of strong corporate governance, defined in terms of the presence of a substantial blockholder.

JEL Classification: J33, G31, G34

Suggested Citation

Haynes, Michelle and Wright, Mike and Thompson, R.S., Executive Remuneration and Corporate Divestment: Motivating Managers to Make Unpalatable Decisions. Journal of Business Finance & Accounting, Vol. 34, No. 5-6, pp. 792-818, June/July 2007, Available at SSRN: https://ssrn.com/abstract=999767 or http://dx.doi.org/10.1111/j.1468-5957.2007.02008.x

Michelle Haynes

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Mike Wright (Contact Author)

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom
+44 115 951 5257 (Phone)
+44 115 951 5204 (Fax)

R.S. Thompson

Nottingham University Business School (NUBS) ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

HOME PAGE: http://www.nottingham.ac.uk/cgi-bin/directory_lookup.cgi?surname=Thompson&initials=&number=&departme

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