Younger than the CEO in the boardroom – does it matter? Empirical evidence on firm performance and CEO Compensation

Abstract

Empirical research in Finance and Corporate Governance has seen various factors introduced for tracking the monitoring and advising capability of the board of directors. It is also widely agreed that the CEO and board member age are relevant factors that determine the behavior of an individual in a corporate world. The former literature on CEO and board characteristics concentrates mostly on the separate effects, not the relation between these two. Still, the studies on these two variables provide arguments that age matters, therefore encouraging me to examine the relation between these two. In this paper, I look at the U.S. Data from years 1998 to 2016 to determine if there is a relationship between the share of younger-than-CEO members in a board of directors and firm performance as well as CEO Compensation. The data used in the paper generates from ISS for the board variables, Execucomp for CEO compensation and CSRP and Compustat for the financial and market infor-mation of the sample firms. I estimate a linear regression with industry and year-fixed effects with relevant controls based on the previous literature on board composition factors. Part 1 of the paper will introduce the reader to the topic and former literature in the field, part 2 to the initial hypotheses, data and methods and the parts 3-6 will show the regression results and discuss them. I find statistically significant relation between the total CEO compensation and the cash intensity of the compensation. However, based on this sample, no statistically significant evidence on the firm performance can be found.