We find that IPO firms with generously compensated CEOs and large pay disparities between the CEO and other top executives have lower failure rates and longer time to survive in subsequent periods following the offering.
Economically, firms with CEO pay (pay gaps) in the 75th percentile have a failure risk that is, on average, 11.56% (13.20%) lower than the failure risk of firms with CEO pay (pay gaps) in the 25th percentile.
The relationship between CEO pay and IPO survival is strengthened among firms with lower agency conflicts, whereas the link between pay gap and IPO survival is pronounced among firms with stronger internal promotion incentives.
The results are robust to alternative specifications and additional sensitivity tests.
By: Dimitrios Gounopoulos (University of Bath), Georgios Loukopoulos (University of Bath, School of management), and Panagiotis Loukopoulos (University of Strathclyde)
See the entire SSRN paper here