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Article
Publication date: 6 November 2018

Ji Li and Yuhchang Hwang

The purpose of this paper is to provide new evidence on the choice of performance measures used in dual-class firms to incentivize CEOs.

Abstract

Purpose

The purpose of this paper is to provide new evidence on the choice of performance measures used in dual-class firms to incentivize CEOs.

Design/methodology/approach

This paper uses coarsened exact matching and propensity score matching to match the dual-class firm sample with a control group of single-class firms. This study uses matching estimators to provide an analysis of how a dual-class structure affects the design of performance measures in performance-based stock awards. In addition, regression models are used to investigate the effect of a dual-class structure on performance measure choices.

Findings

This paper finds that market-based metrics are less likely to be used by dual-class firms relative to single-class firms. In addition, peer-based measures are much less common for dual-class than single-class firms. This study also finds that the length of the CEO’s performance evaluation period does not differ between dual-class and single-class firms.

Research limitations/implications

This paper attempts to investigate the choice of performance measures to find out the extent to which the board of directors focuses CEO efforts on firms’ long-term versus short-term objectives.

Practical implications

The findings reveal the relationships between the dual-class stock structure and the contractual features of CEO performance-based stock awards, provide empirical evidence for the company’s compensation committee and provide implications for the evolving practices of performance measures regarding CEO stock compensation. The findings are also useful to regulators, compensation consultants and firms pursuing efficient design of executive compensation.

Originality/value

This paper is among the first to study the determinants of compensation contracts. Second, prior literature seldom controls for CEO stock ownership, but this study matches dual-class firms to a control group of single-class firms that are similar in terms of CEO stock ownership and other important firm characteristics. Finally, these findings suggest that dual-class firms shield their executives from short-term market pressures and design stock compensation contracts that deemphasize volatile stock prices.

Details

Review of Accounting and Finance, vol. 17 no. 4
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 1 June 2005

Ming‐Chin Chen, Shu‐Ju Cheng and Yuhchang Hwang

The purpose of this article is to investigate empirically the relation between the value creation efficiency and firms’ market valuation and financial performance.

19741

Abstract

Purpose

The purpose of this article is to investigate empirically the relation between the value creation efficiency and firms’ market valuation and financial performance.

Design/methodology/approach

Using data drawn from Taiwanese listed companies and Pulic's Value Added Intellectual Coefficient (VAIC™) as the efficiency measure of capital employed and intellectual capital, the authors construct regression models to examine the relationship between corporate value creation efficiency and firms’ market‐to‐book value ratios, and explore the relation between intellectual capital and firms’ current as well as future financial performance.

Findings

The results support the hypothesis that firms’ intellectual capital has a positive impact on market value and financial performance, and may be an indicator for future financial performance. In addition, the authors found investors may place different value on the three components of value creation efficiency (physical capital, human capital, and structural capital). Finally, evidence is presented that R&D expenditure may capture additional information on structural capital and has a positive effect on firm value and profitability.

Originality/value

The results extend the understanding of the role of intellectual capital in creating corporate value and building sustainable advantages for companies in emerging economies, where different technological advancements may bring different implications for valuation of intellectual capital.

Details

Journal of Intellectual Capital, vol. 6 no. 2
Type: Research Article
ISSN: 1469-1930

Keywords

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