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Article
Publication date: 22 July 2021

Murat Isiker and Oktay Tas

The paper aims to measure the magnitude of the event-induced return anomaly around bonus issue announcement days in Turkey for recent years. Also, by describing the…

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Abstract

Purpose

The paper aims to measure the magnitude of the event-induced return anomaly around bonus issue announcement days in Turkey for recent years. Also, by describing the information content of these announcements with the current data, the study tries to find out the factors that cause return anomaly in Borsa Istanbul when firm boards release the bonus issue decision.

Design/methodology/approach

The paper conducts event study methodology for detecting market anomaly around bonus issue announcements. For the pairwise comparison purpose, t-test and one-way ANOVA methods are applied to examine if abnormal returns vary according to the information content of the announcements.

Findings

Announcement returns for bonus issues from internal resources outperform the issues that are distributed from last year's net income as bonus shares. Findings indicate different return behaviour among internal resources sub-groups. Findings also suggest that investors in Turkey welcome larger-sized issues, while cumulated returns for the initial offers significantly differ from the latter issues.

Research limitations/implications

Findings are limited to the Turkish equity market. Also, the Public Disclosure Platform of Turkey, which is the main data source of the study, does not provide bonus issue announcements before 2010. Therefore, the previous year's data cannot be included in the analysis.

Originality/value

This paper is novel in terms of considering the main resources of the bonus issue in detail to measure the announcement's impact on stock returns.

Details

Journal of Capital Markets Studies, vol. 5 no. 1
Type: Research Article
ISSN: 2514-4774

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Article
Publication date: 12 July 2021

Murat Isiker and Oktay Tas

This paper aims to examine the stock return behaviour around the bonus issue announcements in eight emerging markets for 2010–2019 by addressing the signalling, cash…

Abstract

Purpose

This paper aims to examine the stock return behaviour around the bonus issue announcements in eight emerging markets for 2010–2019 by addressing the signalling, cash substitution and liquidity hypotheses.

Design/methodology/approach

Besides using the standard event study technique to test the presence of an anomaly, country-based regression analyses are performed. Firm-specific factors are used to understand the motive behind the anomaly observed pre- and post-announcement periods. Also, the Amihud illiquidity measure examines the liquidity hypothesis, while standardized profitability and investment ratios compare the long-run operational performance of bonus issuers to test the validity of signalling.

Findings

The findings provide evidence that abnormal returns can be detected ten days before the announcement in some countries, which is a sign of information leakage. The presence of the effect continues only in two countries after the announcement is released. The size of the bonus issue is found strongly significant in most countries, while a weak relation between abnormal return and other factors is detected. Moreover, the signalling hypothesis does not hold in the sense of long-run profitability increase, while liquidity assertion is partially presented.

Research limitations/implications

Due to an inadequate number of announcements in other emerging markets, the number of sample countries is limited by eight.

Originality/value

The research is novel regarding analyzing a wide range of emerging countries with various variables. Also, the paper is distinguished from other studies by applying multiple set of regressions under nine different event windows.

Details

Review of Behavioral Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 18 June 2021

Markus Arnold

This paper aims to analyze challenges of subjective performance evaluation (SPE) and their effects on team performance. It focuses on discretionary bonus allocations in…

Abstract

Purpose

This paper aims to analyze challenges of subjective performance evaluation (SPE) and their effects on team performance. It focuses on discretionary bonus allocations in teams and challenges driven by cognitive biases on the superior or the employee side. This is important as efficient teamwork is a relevant source of competitive advantages in firms, and firms often rely on teams to coordinate various, mutually supportive organizational activities.

Design/methodology/approach

The author analyzes results that have recently been discussed in the literature and link them to each other to create a more holistic picture about potential performance effects of SPE. Based on the analyses, the author develops avenues for future research and point out open questions.

Findings

Exploring employees’ fairness perceptions in team settings in which there is no clear standard for a “fair” team bonus allocation, the author finds that perceived fairness of team bonus allocation may decrease under SPE because employees interpret the “fairness” of the bonus allocation from an egocentric perspective. Such decrease in perceived fairness can eventually even lead to decreased team performance. Likewise, on the superior side, more complex, but highly relevant team can cause cognitive biases of superiors in assessing employee performance, thereby decreasing the potentially positive effects of SPE on team performance.

Originality/value

This paper contributes to the literature by analyzing recently discovered challenges of SPE in teams and linking them to each other to draw more general conclusions about the performance effects of SPE. For practice, my findings imply that firms may want to be cautious when evaluating the potential effects of SPE – as it is made by human beings with their cognitive biases. For research, the paper opens up new research possibilities and points out open questions.

Details

Pacific Accounting Review, vol. 33 no. 1
Type: Research Article
ISSN: 0114-0582

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Book part
Publication date: 4 August 2008

Eduardo Schiehll

Following the optimal contracting hypothesis, this study investigates the issue of whether the board of director's ex ante choice to incorporate individual performance…

Abstract

Following the optimal contracting hypothesis, this study investigates the issue of whether the board of director's ex ante choice to incorporate individual performance evaluation (IPE) measures into the CEO bonus plan rewards managerial decisions not reflected in measures of the firm's current financial performance. Empirical results provide evidence that the use of IPE in the CEO bonus plan is an increasing function of the proportion of outsider directors on the board and a decreasing function of the informativeness of financial performance measures. This study also demonstrates how the use of IPE in incentive contracting can explain CEO cash compensation that is not explained by the firm's current performance and governance variables. Finally, the CEO incentive cash compensation not explained by observable performance measures or governance structure is positively associated with firm future performance one year after its award. Overall, results support the optimal contracting hypothesis. IPE appears to be used to increase the informativeness of CEO actions and determine the level of current CEO cash incentive compensation.

Details

Performance Measurement and Management Control: Measuring and Rewarding Performance
Type: Book
ISBN: 978-1-84950-571-0

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Book part
Publication date: 16 July 2019

Ahmet C. Kurt and Nancy Chun Feng

Many argue that the design of compensation contracts for public company chief executive officers (CEOs) is often not guided by a goal of value maximization. Yet, there is…

Abstract

Many argue that the design of compensation contracts for public company chief executive officers (CEOs) is often not guided by a goal of value maximization. Yet, there is limited direct empirical evidence on the negative consequences of the proposed inefficient contracting between shareholders and CEOs. Using data on CEO bonus contracts of the S&P 500 firms, we investigate potential firm performance implications of the use of qualitative criteria such as leadership and mentoring in those contracts. We maintain that unlike quantitative criteria, qualitative criteria are difficult to define and measure on an objective basis, possibly resulting in an inefficient and biased incentive structure. Twenty-five percent of the sample observations have CEO bonus contracts that include a qualitative criterion for bonus payment determination. Our results show that employee productivity, asset productivity, capital expenditures, and future abnormal stock returns are lower for firms that use a qualitative criterion in CEO bonus contracts than those that do not. Further, contrary to the argument in prior literature that earnings management decreases with the use of subjective performance indicators in incentive contracts, we find that income-increasing accruals are actually higher when the CEO bonus contract includes a qualitative criterion. We recommend that compensation committees set concrete, measurable performance goals for CEOs, providing CEOs with better guidance and helping improve their corporate decision making.

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Book part
Publication date: 18 September 2017

Carol MacPhail, Riza Emekter and Benjamas Jirasakuldech

Bonus depreciation was enacted by the United States Congress and signed into law in 2002 largely in response to the economic malaise that engulfed the U.S. economy after…

Abstract

Bonus depreciation was enacted by the United States Congress and signed into law in 2002 largely in response to the economic malaise that engulfed the U.S. economy after the September 11, 2001 terrorist attacks. We investigate whether bonus depreciation, a capital asset expensing allowance under the U.S. federal income tax code, impacts the level of business investment in property, plant, and equipment in the time periods that followed 9-11 in comparison to other earlier time periods. Based on the empirical evidence, the bonus depreciation policy has a positive effect on capital expenditures only in the period in which this policy was legislatively anticipated, specifically the period spanning the last quarter of 2001 and the first quarter of 2002. Otherwise, we find no significant increase in capital expenditures during the period that this special depreciation provision policy is initially in place from 2002 to 2005. Although bonus depreciation is re-enacted in response to the fiscal distress and recession that began in 2007, capital expenditures actually decline during the recovery era, a period following the post-2008 subprime mortgage crisis. Though Congress continues to temporarily re-enact bonus depreciation on an annual basis through December 31, 2014, there is no strong evidence that capital investment is positively impacted. Instead, the empirical results show that factors that positively affect the level of companies’ capital expenditures include capital intensity, cost of capital, amount of cash holdings, changes in sales and loans. Our empirical results invite the question of Congress’ intended goal in re-instating bonus depreciation for 2015 through 2019.

Details

Advances in Taxation
Type: Book
ISBN: 978-1-78714-524-5

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Article
Publication date: 19 May 2021

Emmanuel Adu-Ameyaw, Albert Danso, Samuel Acheampong and Cynthia Akwei

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…

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.

Details

International Journal of Accounting & Information Management, vol. 29 no. 3
Type: Research Article
ISSN: 1834-7649

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Book part
Publication date: 28 October 2021

Dipankar Ghosh, Anne Wu and Ling-Chu Lee

Research on weighting of measures often examines only one incentive at a time (usually bonus) and provide mixed findings regarding the relevance of non-financial…

Abstract

Research on weighting of measures often examines only one incentive at a time (usually bonus) and provide mixed findings regarding the relevance of non-financial performance (NFM) measures to evaluate and reward long-term time horizon employees. Using proprietary data from an auto dealership organization, we show that financial measures (FM) are weighted more for bonus than they are weighted for merit raise and promotion but NFM are weighted more than FM for merit raise and promotion. Thus, the temporal orientations of the measures and incentives seem to be aligned: the short-term (long-term) nature of FM (NFM) parallel’s the time horizon of the incentives. Next, our exploratory research questions find that for bonuses, both FM and NFM exert similar levels of significant and positive influence on junior and senior managers. But for promotions, the influence of FM is insignificant for both groups. In contrast, the influence of NFM on promotions is not only significant for both groups but is significantly greater for junior managers than it is for senior managers. That is, the evaluations of NFM for senior managers are less influential on their promotion than they are for junior managers suggesting that promotions for senior managers are often based on factors other than their formal performances.

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Book part
Publication date: 9 November 2017

Sizwe Timothy Phakathi

This chapter examines and discusses the unintended outcomes of the production bonus scheme the mine had instituted to motivate and increase the productivity of the…

Abstract

This chapter examines and discusses the unintended outcomes of the production bonus scheme the mine had instituted to motivate and increase the productivity of the frontline mining teams. This is crucial given that the maladministration of the bonus system could lead to a range of undesired outcomes such as deteriorating levels of trust between management and frontline workers, prioritisation of production at the expense of safety, poor work relations and ultimately low levels of organisational, employee and team performance. There are a number of organisational, management and labour factors that can render a production bonus scheme effective or ineffective. These factors influence the nature and extent of worker reactions to the bonus scheme.

This chapter examines and discusses the factors that influenced the reaction of the mining teams to the team-based production bonus scheme and the extent to which mine management fulfilled its side of the bargain in the implementation of the production bonus. The chapter highlights the manner in which the team-based bonus system influenced teams of stope workers to engage in their informal organisational practice of making plan (planisa) in order to offset the snags that jeopardised their prospects of earning the production bonus. The chapter reveals that, to a large extent, the productivity bonus generated conflict rather than cooperation at the point of production down the mine. As a result, the incentive scheme failed to live up to expectations by not eliciting the desired levels of organisational, worker and team performance at the rock-face.

Details

Production, Safety and Teamwork in a Deep-Level Mining Workplace
Type: Book
ISBN: 978-1-78714-564-1

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Article
Publication date: 13 November 2020

Christopher M. Harris and Lee W. Brown

The human capital of a leader and the human capital of the employees who work for the leader can impact the bonus earned by the leader. Little to no research has examined…

Abstract

Purpose

The human capital of a leader and the human capital of the employees who work for the leader can impact the bonus earned by the leader. Little to no research has examined data that includes the maximum potential bonus that could be earned by a leader and the actual bonus earned. This information provides a closer examination of leader performance and the impacts of leader and employee human capital on the bonus earned by the leader.

Design/methodology/approach

The authors use a sample of NCAA college football teams and head coaches over two years to test their hypotheses. They measure the human capital of the team and the human capital of the head coach. In addition, the authors assess the percentage earned by the head coach of the maximum potential bonus possible.

Findings

The authors find that a coach's human capital and the human capital of their team positively and significantly predict the percentage of the maximum possible bonus earned by the head coach.

Practical implications

The results of this study indicate the importance of leader human capital to a leader's ability to earn more of their maximum potential bonus. Additionally, if a leader is able to surround himself or herself with highly talented employees, it will benefit the leader in terms of the amount of bonus earned.

Originality/value

This study extends previous research to provide a more complete picture of factors that influence a leader's ability to earn more of their maximum possible bonus. The authors’ findings that both the human capital of the leader and the human capital of employees who work for the leader impact the amount of bonus earned by the leader add value to human resource management research. Specifically, when examining factors that impact a leader's bonus earnings, it is important to consider not only characteristics of the leader but also factors apart from the leader, such as the leader's employees.

Details

Journal of Organizational Effectiveness: People and Performance, vol. 8 no. 1
Type: Research Article
ISSN: 2051-6614

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