eThesis - Kauppakorkeakoulun sähköiset gradut

PURPOSE OF THE STUDY The purpose of this thesis is to examine whether the existence of anti-takeover provisions in firms’ articles of association have an effect on executive compensation. The study is based on the agency theory that suggests that weak shareholder protection protects firm management from the market discipline and thus enables rent-seeking behavior, which is seen, for example, in executive compensation levels. This view is also supported by the findings of previous Anglo-Saxon studies. However, previous Nordic studies on weak corporate governance structures do not find support for the hypothesis, indicating that in the Nordic context, the provisions are set to protect the interests and long-term benefits of the current shareholders instead of those of the firm management. This thesis thus aims to investigate whether anti-takeover provisions have an effect on executive compensation, the view supported by the Anglo-Saxon studies.

DATA The data set consists of 258 CEO-year observations from 30-62 firms listed on the Helsinki Stock Exchange main list during 1998-2002. The executive compensation data are from the Finnish Tax Authorities and the common stock and stock option data from company annual reports, websites, and stock market announcements. Anti-takeover provision data are gathered from the companies’ articles of association. Additional data has been gathered from The National Board of Patents and Registration in Finland, Datamonitor, and TA-Yritysmalli.

RESULTS I do not find a relationship between the number of anti-takeover provisions and the level of executive compensation, so my findings do not show that the relationship would exist in Finland. My findings could thus support the view that in Finland, the anti-takeover provisions are set by the shareholders to protect their long-term interests and benefits rather than to protect those of the firm management. However, similar to the results of previous studies, I find that the level of CEO compensation is mostly driven by firm size and CEO age, which I use as a proxy for tenure. Other factors that I find mostly affecting the level of CEO pay in Finland are the percentage of firm stock held by the CEO, the percentage of firm stock held by the biggest owners, Tobin’s Q, and EBIT as a percentage of revenue.