The Link Between Chief Executive Officers’ Cash Bonuses and Return On Equity: A Study of Swedish Firms

Abstract: This thesis quantitatively examines the relationship between executive compensation and firm performance for 120 companies listed on the OMX Stockholm stock exchange 2003 through 2007. We perform regression analysis of return on equity on cash bonuses. Our results indicate that there is no relationship between the two variables. This is in line with American studies which show weak or nonexistent relationships between cash bonuses and company performance. We hypothesize that this is largely due to the inflexibility of CEO cash bonuses. Previous research supports our findings that cash bonuses have low variance on a year-to-year basis.