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CEO Compensation and Board Structure




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    • Chhaochharia is with University of Miami and Grinstein is with the Johnson School of Management, Cornell University. An earlier version of this paper was circulated under the name “CEO Compensation and Board Oversight.” For their helpful comments, we thank an anonymous referee, Cam Harvey (the editor), John Graham (the coeditor), Prasun Aggarwal, Lucian Bebchuk, Ola Bengtsson, Hal Bierman, Dirk Jenter, Roni Michaely, Maureen O'Hara, N.R. Prabhala, Amir Rubin, Siddharth Sharma, Chester Spatt, David Weinbaum, Bilal Zia, and seminar participants at Columbia University, Cornell University, Hebrew University, London Business School, London School of Economics, University of Maryland, University of Miami, NBER Summer Institute, Stockholm School of Economics, Syracuse University, Yale University, the Third Annual Conference of the Caesaria Center, and the Bank of Israel Conference on Corporate Governance.


In response to corporate scandals in 2001 and 2002, major U.S. stock exchanges issued new board requirements to enhance board oversight. We find a significant decrease in CEO compensation for firms that were more affected by these requirements, compared with firms that were less affected, taking into account unobservable firm effects, time-varying industry effects, size, and performance. The decrease in compensation is particularly pronounced in the subset of affected firms with no outside blockholder on the board and in affected firms with low concentration of institutional investors. Our results suggest that the new board requirements affected CEO compensation decisions.