Abstract:
Purpose: This study examines the relationship between CEOs playing a dual
administrative role in a company and their tenure and compensation. This paper
examines the research problem by applying four theoretical frameworks—
“managerial power theory,” “efficient contracting theory,” “ability matching
theory,” and “bargaining theory.”
Design/methodology/approach: The research sample includes 1,223 companies
across 50 industries, totaling 4,419 firm years from the year 2011 to 2021. The
findings are more robust when industry-fixed effects are modeled into the
relationship. A variable, like the persistence of ROA, is also introduced into the
model.
Findings: Despite some heterogeneity in the effects of CEO duality and CEO
tenure, the results reveal a favorable influence of CEO duality and CEO tenure,
suggesting that bargaining theory holds good concerning CEO remuneration in
Indian companies. CEOs who can keep a high persistent ROA may see an
increase in their remuneration.
Implications: Because there is a positive association between the size of the
company and the compensation the CEO receives, it comes to reason that larger
organizations are leveraging pay to lure the best suitable candidates. It would
appear that growing Indian firms are prepared to pay more for CEOs with the
experience and competence to take their company to new heights. This is a direct
result of the positive implications that MBV has. Due to the favorable impact of
ROA IOP, CEOs who maintain a high return on assets over time might anticipate
receiving a larger compensation package.
Originality Value: It is the first study to use a large sample of 50 industries from
the Indian market providing data on CEO remuneration and other characteristics,
and also the first study to test the impact of volatile ROA on CEO remuneration.
