Firms’ Environmental Uncertainty and Excessive CEO Pay

Grace J. Y. Johnson, Li Sun, Joseph H. Zhang


We investigate the relationship between environmental uncertainty and the power of Chief Executive Officer (CEO) at the firm level. We use the coefficient of variation of sales to measure environmental uncertainty (Ghosh and Olsen, 2009) and CEO excess pay as a proxy for CEO power (Bebchuk et al., 2011). Our multivariate regression analyses reveal a significant and negative relationship between environmental uncertainty and the excessive CEO pay, suggesting that CEO power decreases in the presence of a volatile operational environment. We perform various additional tests and obtain consistent results. In summary, our findings imply that uncertain corporate operational environments mitigate the power of CEOs.

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Accounting and Finance Research
ISSN 1927-5986 (Print)   ISSN 1927-5994 (Online) Email:

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