Abnormal CEO compensation and firm performance: Empirical evidence from Europe

Abstract

This study presents new evidence on a relationship between chief executive officer compensation and subsequent firm performance. The sample is collected from Europe, consists of 1459 firm years and covers period of 2000-2013. Methods used to test the relationship in this study are ordinary least squares and weighted least squares regression models. Previous studies of Carter et al. (2016) and Core et al. (1999) suggest that abnormal CEO compensation has a decreasing effect on subsequent firm performance. Contrary to the previous findings, results of this study suggest that the relationship is rather positive, albeit abnormal compensation coefficients are not thoroughly found statistically significant. The results might be explained with global differences in CEO compensation practices, policies and regulations.