Firm Performance in the Hospitality Industry: Do CEO Attributes and Compensation Matter? [Summary]

Abstract

Previous studies have shown mixed results concerning the role of CEO played in affecting the financial performance of businesses in the hospitality sector. This study has explored the relationship between the CEO’ performance and the financial performance of a firm. Further, the research examined the role of compensation and CEO attributes like education, age, tenure, functional background, and gender on firm financial performance. The results suggest that the hospitality industry may want to rethink the management policies so that executives and shareholders can better align and empower managers to maximize the value for themselves.

It has been found through sampling that CEOs receive twice as much equity compensation as cash compensation. When equity compensation constitutes a large percentage of CEO compensation, CEO personal portfolios become less diversified, and CEOs become more risk averse and are more likely to avoid risky and value-enhancing investments. An alternative explanation could be that several large mergers and acquisitions (M&As) occurred in the hospitality industry during the sample period.

CEO cash compensation is positively related to return on assets, while equity compensation is unrelated to firm performance. When CEO compensation and attributes are jointly examined, CEO compensation has a relatively lower impact on firm performance than CEO attributes do.