Carlo Drago1 CEO Compensation and Performance in Family Firms by Barontini and Bozzi Carlo Drago SIDE-ISLE Annual Conference 2009 University of Naples “Federico II”, Department of Mathematics and Statistics

Paper relevance “…The dominant governance model outside the US and especially in Continental Europe is represented by family firms, namely companies owned and often managed by its founder or heirs…” “…A non trivial part of the world economy is run through family firms owned by the founder and his heirs…” “Empirical evidence shows that family firms tend to pay CEO systematically more than other firms and the ownerships exerts a significative effect…” ”Family CEOs are paid more than professional CEOs…” …”Higher compensation granted to the CEO by family firms is related to worse stock and accounting returns and could be interpreted as a form of rent extraction Carlo Drago2

Previous Empirical Results and Hypotheses The authors reviews previous empirical results… It would be useful to provide a comparative table with the econometric results of other studies, and methodologies used. Authors formulate four hypotheses and they perform econometric analysis to test the main hypotheses: 1) CEO compensation is higher in family firms than in non- family firms 2) In family firms, family CEOs are paid more then professional CEOs

Econometric Methodology I: Data Issues Missing at random: Are there missing values? Are the missing values at random or they present structure? Are they relevant in the estimation? What is a form of imputation in data? Error measurement: Is “other compensation” a variable measured with error? Sampling: Defining the sample “175” firms… Sample selection problem? Latent Variables: are we not considering some relevant variables can be obtained by using a statistical procedure? Dataset: General suggestion: publishing the dataset or some parts can be very important…

Econometric Methodology II: Estimation Fixing hypotheses can impose a “straightjacket” on our data, by losing important data features… Functional form and model specification: can we detect some nonlinear structures in the data? …Data Visualization issues: showing the structure of the data, to understand the data structure… In particular scatterplot matrices or at least correlation matrices… Mixture models and modelling (are data implying different statistical models?) Data computed with measurement error: Interval data analysis, and interval regression Are data implying econometric robust methods? (See Econometric Methodology: Diagnostics section)

Econometric Methodology (III): Diagnostics …Omitted variables? Can we detect structure in the residuals? (Is excess of compensation related to any variable?) Outliers, Sensitivity Analysis, Leverage Effects and Influence Diagnostics. Can outliers have a relevant impact on results? Is the analysis robust to these anomalies? Is the analysis robust to any change in model specification: Robustness analysis Model fits as indicator of correct specification and omission of variables. Hypothesis testing\Interpretation Signs of the relationship and modelling procedure (model correct specification). Multicollinearity? Principal Component Analysis

Bibliography Greene (2008) “Econometric Analysis” Prentice Hall Peracchi (2002) “Econometrics” Wiley and Sons Piccolo (2000) “Statistica” Il Mulino