CEO Compensation - The Effect of Owning Foreign Subsidiaries

Abstract: There have historically been high differences in CEO compensation levels internationally, specifically between the US and the rest of the world. It has however been argued that the growing internationalization of firms should contribute to a convergence of CEO compensation. In this thesis the effect of owning foreign subsidiaries on CEO compensation is analysed. Cross-sectional regressions are performed on a sample of 160 listed Swedish firms for the year 2006 to test the relationship. The results show that owning foreign subsidiaries increases CEO compensation after controlling for firm size and industry. This effect is even stronger when subsidiaries are established in high compensation countries. Unexpectedly however, no significant effect of owning subsidiaries in the US is observed, nor do the results support the hypothesis of an effect on equity-based compensation.