Size, Growth, Profits, and Executive Compensation in the Large Corporation: A Study of the 500 Largest United Kingdom and United States Industrial Corporations

Size, Growth, Profits, and Executive Compensation in the Large Corporation: A Study of the 500 Largest United Kingdom and United States Industrial Corporations

Size, Growth, Profits, and Executive Compensation in the Large Corporation: A Study of the 500 Largest United Kingdom and United States Industrial Corporations

Size, Growth, Profits, and Executive Compensation in the Large Corporation: A Study of the 500 Largest United Kingdom and United States Industrial Corporations

Excerpt

The object of this book is to examine some interrelationships between size, growth, profitability and executive compensation across large U.K. and U.S. corporations.

Our attention is restricted to large corporations and, for the most part, to industrial corporations, for four reasons. First, large corporations account for a major proportion of economic activity in the U.K. and U.S. economies — for instance, in 1972, 65 per cent of the sales, 75 per cent of the employment and 75 per cent of the profits of all U.S. industrial corporations were accounted for by the largest 500 firms. Secondly, limitation of the study to large firms makes the group of firms studied much more homogeneous than if we attempted to deal with smaller firms in the same analysis. Thirdly, the business and financial community devotes especial attention to the behaviour of the 500 largest industrial companies. Finally, data on a consistent basis are available for this sample of firms in both the United Kingdom and the United States.

Four major topics are dealt with in the present study: first, the relationship between alternative measures of firm size and between alternative measures of industrial concentration (Chapters 2 and 3, the first half of Chapter 4 and Chapter 5); secondly, the relationship between the rate of growth of firms and firm size (the second half of Chapter 4); thirdly, the behaviour of firm profitability (Chapters 6 and 7); and fourthly, the determinants of executive compensation (Chapters 8 and 9).

Sales, assets, employment and equity have been popular measures of firm size in empirical studies. We derive the conditions under which the results obtained from empirical studies will be independent of the specific measure of firm size used and find that the necessary conditions are not fulfilled for large U.K. and U.S. firms. Some implications of this finding for past and potential studies are pointed out. The problems involved in using alternative indices of industrial concentration are similar to those involved with alternative measures . . .

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