Does location influence executive compensation? Evidence from Canadian SMEs
- 73 Downloads
We examine the impact of geographic location on the level and structure of executive compensation of small and medium enterprises (SMEs) in Canada, using a panel data sample between 2008 and 2011. Our results show that SMEs pay a higher price for talent by paying a large proportion (71%) of compensation as guaranteed cash pay to their executives. We also report a strong influence of location on compensation structure. Specifically, rural firms pay 13% more incentive based equity pay to their executives compared to their size matched urban counterparts. However, there is no difference between the total compensation for managers of rural and urban firms after controlling for the cost of living index. In cross-sectional tests, we observe that total compensation is positively related to CEO/Chair duality and family ownership but is not related to management quality. In addition, we find that rural firms display a higher pay-performance sensitivity.
KeywordsExecutive compensation Location SMEs Canadian firms
JEL ClassificationG30 G34 M52
We acknowledge and thank the Desjardins Centre for Innovation in Business Finance at Concordia University for providing financial support for this research. We also thank participants at the 2013 Academy of Finance Conference in Chicago and the 2015 India Finance Conference in Kolkata, India, for their valuable feedback on earlier versions of this paper. Hossain thanks Memorial University’s Vice President Research for providing funding through SSHRC-VP Grant Program (Account Nos. 211201 and 209451). He also thanks Faculty of Business Administration at Memorial University for providing funding through SEED Grants (Account No. 209392). Finally, we thank Nadim Nazha for his excellent research assistance with assembling the data from proxy statements. All remaining errors are our own.
- Bouwman, C. H. S. (2013). The geography of executive compensation. Working paper, Case Western Reserve University.Google Scholar
- Cai, Y., & Tian, X. (2009). Firm location and takeover likelihood. Working paper, Indiana University.Google Scholar
- Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323–329.Google Scholar
- Loughran, T., & Schultz, P. (2006). Asymmetric information, firm location, and equity issuance. Working paper, University of Notre Dame.Google Scholar
- Murphy, K. J. (1993). Executive compensation 1000. United Shareholder Association.Google Scholar
- Zhang, J. (2012). Does geographical location matter for managerial compensation design? Working paper.Google Scholar