Impact of Firm Performance, Size, and Acquisition on Executive Compensation

Abstract

Prior economic literature has long debated on the determinants of managerial remuneration. This paper examines the impact of corporate performance, size, and acquisition on CEO’s cash compensation of 315 firms listed on the Stockholm Stock Exchange during 2001-07. The analysis adopts multiple approaches including OLS cross-sectional study on period growth, panel analysis on levels through the within approach, and dynamic model with the most advanced methods of difference and system GMM. We find that performance is more important than growth in determining pay changes, but size-related heterogeneity is crucial. Acquisition direct impact on pay is generally undetected.