Davidson, Hsieh selected for journal

By Sun Min

A paper by Henry J. Rehn Professor of Finance Wallace N. Davidson and management student Chialing Hsieh has been selected for publication in the Journal of Academy of Business and Economics.

The paper entitled, “Layoffs, Equity-based Compensation, and CEO Ownership” will be presented at the journal’s meeting in Las Vegas, Nev. in October.

Davidson and Hsieh investigated the relation the relation between CEO equity compensation and layoffs by measuring the extent of CEO stock selling in the year of the layoffs.  They found find that CEOs who lay off workers engage in little or no selling of stocks acquired on the stock-based compensation, but non-layoffs CEOs sell substantial shares after receiving stock compensation.

“Our results indicate that equity compensation succeeds in lifting the incentive levels of CEOs who announced layoffs, despite the controversy over self-interest layoffs decisions.  Moreover, CEOs perceived the restructuring layoffs as value-enhancing activities and tend to avoid conveying negative signals to shareholders by retaining most of their stock-based compensation awarded during the year of layoff announcements,” said Davidson.

The research will be useful to scholars and in this field.  CEO compensation is under considerable scrutiny in our country because they often receive very high pay.  Our results show that this compensation (based on their receipts of equity) does help to align the interests of managers and shareholders and that layoffs do not necessarily occur so that CEOs can line their pocketbooks.