Situation: Executive compensation, especially that of the CEO, is a firm characteristic that is important to investors. You are interested in whether investors consider increases in CEO compensation in firm valuation. You argue that while CEOs are rewarded for greater performance that benefits investors, substantial increases in compensation may be more opportunistic and represent a form of rent extraction. In this case, investor valuation may decline. Further, based on prior research, you argue that female CEO would be less opportunistic, all else considered. This leads to the following two hypotheses.
H1: Substantial increases in total CEO compensation are negatively associated with market value of common equity after controlling for book value of common equity and income before extraordinary items.
H2: The association between substantial increases in CEO compensation and market value of common equity are less negative for female CEOs.
Requirements:
Develop an archival empirical research design to test the above hypotheses. Draw on prior research (should be since 2000) for your base model (you will not likely find the exact model you will be testing). You will need to write-up the research design consistent with accounting articles published in journals. Your write-up should include a fully developed equation, variable definitions, expectations (including explanations) for all variables, and what constitutes support for the hypothesis.
Create your sample using data downloaded from WRDS and prepare descriptive statistics (using stata) typically provided in accounting articles published in The Accounting Review. You will also need to write-up the sample creation and analysis of descriptive statistics and prepare tables consistent with accounting articles published in The Accounting Review.
Merging information
Compustat
Execucomp
GVKEY
GVKEY
FYEAR (year using Compustat definition)
YEAR (year using Compustat definition)
Analyze your data (using stata) using appropriate regression techniques, and perform tests expected in the situation. Perform at least two sensitivity tests. You will need to write-up the analysis and provide tables consistent with accounting articles published in The Accounting Review.
Provide a reference list for articles cited in your write-up. Use APA formatting.
Your submission is the combined write-up addressing the above requirements (it should be one fluid write-up). In addition, please submit a PDF of the article you are primarily relying upon for your research design, and your stata do file.
You are expected to complete this project on your own.
Your submission will be evaluated based on the quality and completeness of the write-up and analyses performed in accordance with the above requirements. Further, grades will be substantially reduced if plagiarism is discovered.
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