“An empirical project on the firm-specific determinants of CEO compensation”



Assessment Information/Brief 2019-20 - Final




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Module title

Corporate & Quantitative Finance





Assessment title

An empirical project on the firm-specific determinants of CEO compensation

Weighting within module

This assessment is worth 50% of the overall module mark.

Submission deadline date and time

Sunday 10 May (midnight Swiss time)

Module Leader/Assessment set by

                                             Dr Abdi Ali


How to submit

You should submit your assessment to the RKC platform;  you can use Turnitin on the platform, to check for any non-referenced content, but if you do please be sure afterwards to press the relevant button confirming that you are happy for your paper to be submitted to RKC.

Assessment task details and instructions


“An empirical project on the firm-specific determinants of CEO compensation”

As part of this module, you are required to write an individual 3,000-word report demonstrating your ability to use quantitative methods to undertake an empirical analysis on a topic in corporate finance. Based on the literature on chief executive officer (CEO) compensation/salary, your task is to conduct an empirical study on the determinants of CEO compensation. The dataset (see Excel file CAQF-FinalData) contains information on CEOs for U.S. corporations. This dataset was originally collected by Wooldridge (see main textbook for this module) from Bloomberg Businessweek. The original dataset contained 177 observations but we have extended it by 100 more observations (so the total sample is 277 firms).




Table 1: An overview of the dataset




Annual CEO compensation in $1000s


Years with company


Prior number of years as company CEO


Firm sales in $1,000,000s


Firm profits in $1,000,000s


Age of the CEO in years


End of year market value of the firm in $1,000,000s


Profits as % of sales


Essentially your project is trying to examine the factors that affect CEO salary. In particular, we are interested in how firm performance (i.e. sales) impacts on CEO compensation.


 To execute this project, you should do the following: research the topic under study, provide a conceptual framework, explain the modelling framework as well as the specification(s) adopted, your hypotheses which emanate from the literature (i.e. what are your expectations), a brief discussion of the dataset, the econometric estimates should be correctly interpreted and statistical inferences need to be discussed; relevant regression diagnostics should be conducted, and the empirical implications of the results should be carefully discussed. Finally, the limitation of your research and future research direction should also be considered.


In the following paragraphs, a general guideline as to how the written work can be organized is given. Below each section title, examples of what might be included are listed. You are expected to follow this structure, but small variations are allowed.


Section I: Introduction

        Briefly describe the purpose of the study by specifying your research question and focus, and how you intend to conduct it.

        Try to convince the reader why your work is interesting/worth doing and your research findings are important and relevant.

        Relate your work to some existing study and describe how it fits into the existing literature.

        Outline the structure of the paper.


Section II: The Conceptual Framework

        Discuss in detail the theories or rationales that underlie the relationship you wish to study.

        Review some of the relevant literature (theoretical and empirical).

        Describe your prediction of the relationship that you are studying and specify testable hypotheses.


Section III: The Data and Methodology

        Describe the source(s) of the data and how each variable is measured.

        Provide an exploratory data analysis. Point out any salient features of the data and describe any interesting pattern/ correlation in the data. Provide summary statistics and discuss your findings.

        Specify the regression model, and discuss why such a specification is adopted, for example, why each of the explanatory variables is included, and describe their anticipated effect (either based on theory, previous empirical work, or your rationale). A formal presentation of an empirical model with full explanation of your notation is expected. You are expected to present different specifications but as a benchmark the following model should be included (natural log of salary as a dependent variable and the following explanatory variables, natural log of sales, profits, ceoten, comten, age).

        Discuss the estimation strategy you adopt, the potential econometric issues that may be relevant and how you plan to deal with them. Also discuss any estimator, tests and approaches you intend to apply to support your arguments in your analysis.


Section IV: Econometric Results and Discussion

        Properly present the econometric estimates and evaluate the model performance in terms of goodness of fit and diagnostic tests.

        Interpret the estimated coefficients, and describe whether they correspond to your expectations in light of the literature

        Discuss the results of the benchmark results, then other specification tests, hypothesis tests, robustness analysis (if you have conducted any) and report your findings.

        You should put your results in a table; here you should follow the approach used in peer reviewed research papers.


Section V: Conclusion

        Summarize your study.

        Discuss the implications and/or caveats of the results.

        Suggest how the study may be improved and/or extended in future work.


Format, Presentation and Style

·         Provide full list of references

·         Provide appendices (diagrams, plots, tables, and regression outputs) that are considered to be useful for the reader.

·         You are required to attach a print screen of all the results as an appendix


Marking criteria/scheme


Your written report will be assessed on content, writing style and originality.

In general, marks will be awarded for:

·         Clarity of argument and thoughts

·         Knowledge and interpretation of relevant quantitative methods (i.e. correlation/regression etc.)