Executive Compensation and Tournament Incentives around IPOs

Gounopoulos, Dimitrios and Loukopoulos, Georgios (2018). Executive Compensation and Tournament Incentives around IPOs. In: European Accounting Association 2018: Annual Conference, 30 May 2018-1 Jun 2018, Milan, Italy.

URL: https://researchportal.bath.ac.uk/en/publications/...

Abstract

Using 1,658 U.S. IPOs from 2000 to 2016, we find that, while both compensation and internal pay gap exhibit lower IPO first-day returns, underpricing is on average higher when there are high levels of industry and local pay gap. Economically, having a high compensated CEO on board is associated with a decrease of 2.99% in the value of initial returns to investors. The negative effect of total CEO remuneration on the value of underpricing concentrates among firms with high managerial discretion. Additionally, our findings suggest that a positive association between industry tournament incentives and IPO first-day returns is stronger in less competitive industries as well as among firms with specialist and overconfident CEOs. In contrast, the positive impact of tournament incentives on underpricing is less pronounced in competitive Metropolitan Statistical Areas (MSA) and in firms with new CEOs.

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