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Outrage and Camouflage – an Empirical Examination of the Managerial Power Theory

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Outrage and Camouflage – an Empirical Examination of the Managerial Power Theory TECHNISCHE UNIVERSITÄT MÜNCHEN TUM School of Management Chair for Management Accounting Outrage and Camouflage – An Empirical Examination of the Managerial Power Theory Iris Carola Pfeiffer Vollständiger Abdruck der von der Fakultät für Wirtschaftswissenschaften der Technischen Universität München zur Erlangung des akademischen Grades eines Doktors der Wirtschaftswissenschaften (Dr. rer. pol.) genehmigten Dissertation. Vorsitzender: Prof. Dr. Jürgen Ernstberger Prüfer der Dissertation: 1. Prof. Dr. Gunther Friedl 2. Prof. Dr. Michael Kurschilgen Die Dissertation wurde am 19.09.2017 bei der Technischen Universität München eingereicht und durch die Fakultät für Wirtschaftswissenschaften am 15.12.2017 angenommen. Contents List of Tables ...................................................................................................................... IV List of Figures...................................................................................................................... V List of Abbreviations .......................................................................................................... VI 1 Introduction .................................................................................................................. 1 1.1 Motivation ................................................................................................................ 1 1.2 Positioning of the dissertation within compensation research .................................. 2 1.3 Research gap and research questions .................................................................... 8 1.4 Data samples .........................................................................................................12 1.5 Structure and key findings of the dissertation .........................................................13 2 Essay 1: Outrage – Effective constraint on managerial rent extraction or unwanted interference? A review of the existing literature ..............................................................16 2.1 Introduction ............................................................................................................17 2.2 The idea of managerial power ................................................................................18 2.2.1 Knowledge about compensation practices ......................................................19 2.2.2 Plausible negative impact of executive pay on reputation ................................20 2.2.3 The importance of reputation ...........................................................................21 2.3 Measuring outrage .................................................................................................22 2.3.1 Compensation-related shareholder activism ....................................................23 2.3.2 Public campaigns ............................................................................................26 2.3.3 Media coverage ...............................................................................................26 2.3.4 Indirect effects – The effect of legislation on compensation .............................27 2.4 Dissent as effective outrage ...................................................................................27 2.4.1 Compensation-related shareholder activism ....................................................28 2.4.2 Public campaigns ............................................................................................32 2.4.3 Media coverage ...............................................................................................33 2.4.4 Indirect effects – The effect of legislation on compensation .............................33 2.5 Is outrage justified or an unwanted interference? ...................................................40 2.5.1 The company purpose – Stakeholder orientation versus shareholder value maximization .................................................................................................................42 2.5.2 Reasons for outrage and the underlying motives .............................................45 2.5.3 Consequences for corporate valuation ............................................................48 2.6 Conclusion .............................................................................................................51 2.7 Appendix ................................................................................................................53 2.8 References .............................................................................................................58 3 Essay 2: The media and executive compensation – Sensationalism or investigative journalism? ..................................................................................................69 3.1 Motivation ...............................................................................................................70 I 3.2 Literature review and hypotheses ...........................................................................72 3.2.1 The mechanisms of media coverage ...............................................................72 3.2.2 The media’s impact on reputation and corporate valuation ..............................75 3.3 Data .......................................................................................................................79 3.3.1 Data sources and scope ..................................................................................79 3.3.2 Descriptive statistics and illustrations from the sample ....................................81 3.4 Methodology...........................................................................................................87 3.4.1 The calculation of excessive compensation .....................................................87 3.4.2 Determinants of media coverage of compensation ..........................................88 3.4.3 Impact of media coverage ...............................................................................91 3.5 Results and discussion ...........................................................................................95 3.5.1 Excessive compensation .................................................................................95 3.5.2 Determinants of media attention towards management compensation ............97 3.5.3 Impact of media coverage on compensation ................................................. 101 3.5.4 Impact of media coverage on corporate valuation ......................................... 106 3.6 Conclusion ........................................................................................................... 109 3.7 Appendix .............................................................................................................. 111 3.8 References ........................................................................................................... 112 4 Essay 3: Compensation report transparency – Evidence of camouflage? ........... 118 4.1 Motivation ............................................................................................................. 119 4.2 Institutional background – Compensation disclosure in Germany and the US ...... 122 4.2.1 The German Corporate Governance Code .................................................... 123 4.2.2 The Executive Compensation Disclosure Act ................................................ 124 4.2.3 The Act on the Appropriateness of Executive Compensation ........................ 124 4.2.4 Recent developments in Germany ................................................................ 125 4.2.5 The Securities and Exchange Commission’s disclosure requirements .......... 126 4.3 Literature review ................................................................................................... 127 4.4 Hypotheses .......................................................................................................... 131 4.4.1 Executive compensation ............................................................................... 131 4.4.2 Governance .................................................................................................. 134 4.4.3 Ownership ..................................................................................................... 137 4.5 Data sources and scope ....................................................................................... 138 4.6 Methodology......................................................................................................... 139 4.6.1 Setting up the disclosure index ...................................................................... 140 4.6.2 Calculating the index score ........................................................................... 141 4.6.3 Reliability and validity of the created index score .......................................... 142 4.6.4 The calculation of excessive compensation ................................................... 144 4.6.5 Determinants of (non-)disclosure ................................................................... 146 II 4.7 Results ................................................................................................................. 149 4.7.1 Summary statistics and correlation analysis .................................................. 149 4.7.2 Regression analysis ...................................................................................... 153 4.7.3 Robustness checks ......................................................................................
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