Executive bonus compensation and financial leverage: do growth and executive ownership matter?
International Journal of Accounting & Information Management
ISSN: 1834-7649
Article publication date: 19 May 2021
Issue publication date: 3 August 2021
Abstract
Purpose
This study aims to examine the impact of executive bonus compensation on a firm’s financial leverage policy and the extent to which this compensation–leverage relation is moderated by firm growth and executive ownership.
Design/methodology/approach
Using data from 213 non-financial and non-utility UK FTSE 350 firms for the period 2007–2015, generating a total of 1,784 firm-year observations, panel econometric methods are used to test the model.
Findings
Drawing insights from agency theoretic view, this paper uncovers that managerial cash bonus compensation is negatively and significantly related to financial leverage. However, stock bonus compensation has a positive and significant impact on leverage. This study also observes that compensation–leverage is moderated by both firm growth and executive ownership. The results remain robust to alternative econometric models.
Originality/value
While this paper builds on the risk-motivated argument of executive bonus compensation literature, it is the first – to the best of the knowledge – to explore the bonus compensation-corporate financial leverage and, particularly, examine the extent to which firm growth and corporate executive ownership matter in this relationship.
Keywords
Citation
Adu-Ameyaw, E., Danso, A., Acheampong, S. and Akwei, C. (2021), "Executive bonus compensation and financial leverage: do growth and executive ownership matter?", International Journal of Accounting & Information Management, Vol. 29 No. 3, pp. 392-409. https://doi.org/10.1108/IJAIM-09-2020-0141
Publisher
:Emerald Publishing Limited
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