CEO Compensation and Earnings Sensitivity : A Perspective from CEO Duality

The design of chief-executive-officer (CEO) compensation influences a CEO's decisions and the degree to which the company in question values foreign and domestic earnings. This study explores how CEO compensation structure influences foreign and domestic earnings. This study investigates 1,393 listed and over-the-counter companies from 2001 to 2004. The results show that when a CEO also serves as the chairperson of the board of directors, the design of CEO compensation does not assign high weighting to foreign earnings. By contrast, when a CEO is not the chairperson of the board of directors, the design of CEO compensation assigns significantly high weighting to foreign earnings. This research is one of the few studies that explore the influence of a CEO who also serves as the chairperson of the board of directors on CEO compensation composition. The findings reveal that agency problems due to a CEO also serving as the chairperson of the board of directors may influence the importance of foreign earnings in relation to CEO compensation. This study substantially contributes to the fields of corporate governance and earnings management