A study of the relationship between CEO compensation and firm performance in the U.S. airline industry: 2002--2006

by Morlino, Trudy Dawkins, Ph.D., CAPELLA UNIVERSITY, 2008, 131 pages; 3324731

Abstract:

This study addressed the relationship between CEO compensation and firm performance in the U.S. domestic passenger airline industry, a low managerial discretion industry. To answer the question, is there a relationship between CEO compensation (salary plus bonus) and the independent variables, return on assets, return on equity and the debt-to-asset ratio, this study applied nonparametric statistics to a sample of publicly traded U.S. airlines for a five-year period, 2002-2006. Data for the study period relied exclusively on secondary data compiled by the Securities and Exchange EDGAR database and publicly available annual reports. The sample for this study consisted of 15 years of CEO compensation and firm performance data for three of the historically dominant U.S. scheduled domestic passenger airlines, SIC 4512, NAICS 48111. This study was limited to publicly traded U.S. 'legacy' airlines that operated primarily as a scheduled air passenger service where the CEO of the firm held the position for three consecutive years during the study period. Tests were conducted using Pearson product moment correlation and Spearman's rank correlation. However, for this study, all hypotheses were tested using Spearman's correlation coefficient. Spearman's rho (p) nonparametric statistic was chosen because three major assumptions of the Pearson's parametric correlation (r) were violated. The results indicated that there is a statistically significant negative relationship between the rank ordered CEO compensation (salary plus bonus) and rank ordered return on assets (ROA). The study found no statistically significant relationship between rank ordered CEO compensation (salary plus bonus) and rank ordered return on equity (ROE) or between the rank ordered CEO compensation (salary plus bonus) and the rank ordered debt-to-asset ratio.

AdviserRichard Murphy
SchoolCAPELLA UNIVERSITY
Source TypeDissertation
SubjectsManagement; Economics; Finance; Economic theory
Publication Number3324731

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