Impact of Managerial Ability and Power on CEOs Compensation

An Empirical Evidence from Indian Companies

  • Srikanth Potharla ICFAI Business School(IBS), ICFAI Foundation for Higher Education, India.


The present study aims to test whether the rent extraction or efficient contracting which significantly influences the compensation of CEOs in Indian companies. By drawing the sample from all the listed companies providing data on CEO characteristics from the year 2006 to 2018, the study tests the empirical model using ordinary least squares regression and quantile regression.  The results of analysis reveal that CEO compensation is tenure-variant and there is a trivial difference between the impact of CEO power and CEO tenure. It is in line with the bargaining theory of managerial ability view on CEO compensation. It supports efficient contracting in CEO compensation. The results of the analysis also reveal that impact of CEO power is comparatively less for long-tenured CEOs. It implies that managerial ability view is maintained and CEO compensation is influenced by their bargaining power. The results also prove that power premium is more in case of group companies compared to non-group companies.

Key words: CEO compensation, rent extraction theory, efficient contracting theory, CEO Power, CEO Tenure, Indian companies.


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How to Cite
Potharla, S. (2020). Impact of Managerial Ability and Power on CEOs Compensation: An Empirical Evidence from Indian Companies. Applied Finance Letters, 9(SI), 103-120.
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