Empirical studies in UK corporate governance and executive remuneration

This thesis is structured around four empirical chapters examining related issues in corporate governance. The sample of FTSE 350 companies 1995-2005 has unique properties which are exploited to advance our understanding of the executive pay-setting process; the turnover of Chief Executives (CEOs); the market's reaction to shareholder activism and voting behaviour; and the distribution of pay within the boardroom. Chapter two assesses whether remuneration committees facilitate optimal contracting or whether CEOs are able to capture the pay-setting process and inflate their own remuneration. The findings of prior research, which have been mixed, are shown to be sensitive to the econometric specification employed. A comprehensive assessment of non-executive directors' independence is undertaken. Little evidence is found to support a rents capture model. Chapter three applies duration analysis within a competing risks framework to model the tenure and mode of exit of CEOs. The likelihood of forced departure is found to decrease sharply from the fifth year of a CEO's tenure. Some evidence is found to suggest that this is because CEOs who survive beyond year four entrench themselves in their position. Chapter four considers the impact of shareholder activism. Voting dissent appears inconsequential in terms of increasing shareholder returns, reducing CEO pay or increasing the likelihood of CEO dismissal. However, firing the CEO of a poorly performing company improves shareholder returns soon after the CEO's dismissal. Chapter five examines the structure and distribution of pay amongst board members. As a test of tournament theory, the impact of a rival's succession to CEO on the incumbent directors' compensation and likelihood of exit is examined. A rival's succession has a greater impact on the existing directors' likelihood of exit than it does on compensation