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Article
Publication date: 3 February 2022

Emmanuel Adu-Ameyaw, Linda Hickson and Albert Danso

This study examines how cash and stock bonus compensations influence top executives to allocate a firm's resources to fixed intangible assets investment and the extent to…

Abstract

Purpose

This study examines how cash and stock bonus compensations influence top executives to allocate a firm's resources to fixed intangible assets investment and the extent to which this relationship is conditional on executives' ownership, firm growth, internal cash flow and leverage.

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 1,748 firm-year observations, panel econometric methods are employed to test the authors’ model.

Findings

The authors observe that executives' cash bonus compensation positively impacts fixed intangible assets investment. However, executives' stock bonus compensation has a negative and significant influence on fixed intangible assets. The authors further observe that executives either cash bonus or stock bonus crucially invest more in fixed intangible assets when the firm has a growth potential. Also, both cash bonus and stock bonus executives in firms with lower internal cash flow spend less on fixed intangible assets. Similar results are also observed for those stock bonus-motivated executives with an increase in fixed intangible assets for low leverage firms but a decrease for high leverage ones.

Research limitations/implications

A key limitation of this study is its concentration on a single country (United Kingdom). Thus, future studies can expand the focus of this study by looking at it from the perspective of multiple countries.

Practical implications

The practical relevance of the study results is that firms with high growth opportunity in fixed intangible assets activity can use more cash bonus compensation (risk-avoiding incentive) to induce corporate executives to invest more in such activity. This finding is particularly important given the increasing appetite of firms in this knowledge-based economy to create expansion through fixed intangible assets investment. That is, for firms to increase fixed intangible assets investment, this study suggests that executive cash bonus compensation cannot be ignored.

Originality/value

While this paper builds on the classic Q theory of investment literature, it is the first – to the best of the authors’ knowledge – to explore how cash and stock bonus compensations influence top executives to allocate a firm's resources to fixed intangible assets investment and the extent to which this relationship is conditional on executives' ownership, firm growth, internal cash flow and leverage.

Details

Journal of Applied Accounting Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0967-5426

Keywords

Book part
Publication date: 19 May 2010

Theresa F. Henry

In late 2008, a crisis of unprecedented proportion unfolded on Wall Street that called for the government bailout of institutions. Although the crisis wreaked havoc on the…

Abstract

In late 2008, a crisis of unprecedented proportion unfolded on Wall Street that called for the government bailout of institutions. Although the crisis wreaked havoc on the lives of firm stakeholders and taxpayers, many of the executives of these rescued firms received bonus compensation as the year closed, which called into question the relationship between pay and performance. Equity compensation is viewed by many as the answer to the principal–agent dilemma. By giving an executive stock in the firm, as an owner, his interests will now be aligned with those of shareholders, and the executive will work to enhance firm performance. Equity compensation was on the rise during the 1990s when stock options became the largest component of executivescompensation packages [Murphy, K. J. (1999). Executive compensation. Handbook of Labor Economics, 3, 2485–2563]. During the first decade of the new millennium, usage of restricted stock in compensation plans contributed to the executives’ total package. Whatever the form, equity compensation should induce managers to make decisions for the betterment of the firm.

Empirical evidence, however, has contradicted this ideal notion that mangers who are partial owners of the firm work to maximize firm value. Rather, managerial power in the form of earnings management and manipulation of insider information come to the forefront as a means by which executives can maximize the equity portion of their compensation packages. The Sarbanes–Oxley Act of 2002 as well as new accounting rules set forth by the Financial Accounting Standards Board may help to remedy some of the corporate ills that have surfaced in the past. This will not be possible, however, without compliance and increased corporate governance on the part of firms and their executives. Compensation committees must take great care in creating a compensation package that incites the executive to not only act in the best interest of his firm but also consider the welfare of the common good in his actions.

Details

Ethics, Equity, and Regulation
Type: Book
ISBN: 978-1-84950-729-5

Book part
Publication date: 4 September 2015

Theresa F. Henry

My study examines the pay-for-performance relationship surrounding executive compensation in higher education. There has been much criticism of the rising levels of…

Abstract

My study examines the pay-for-performance relationship surrounding executive compensation in higher education. There has been much criticism of the rising levels of university presidential pay, particularly in the public sector, citing it is pay without performance. Public colleges and universities are funded by taxpayers; therefore, their expenditures are even more heavily scrutinized than private institutions. Many feel that university executives are overpaid and are not delivering a return in the form of enhanced institutional performance to their investors, the public. Growing student debt only adds intensity to the outcry against heightened compensation. Proponents of the increasing pay levels contend that the ever-changing role of the university president and competition in the marketplace for talent warrants such compensation. Using data obtained from The Chronicle of Higher Education and Integrated Postsecondary Education System websites, I find a highly significant and positive relationship between compensation for executives at four-year public institutions and both the levels of university endowment and enrollment. These results support the pay-for-performance debate. In contrast, results for other performance measures, scholarships and graduation rates, do not support the debate. My study contributes to the literature examining pay-for-performance in higher education with an empirical analysis examining the institutional determinants of executive compensation for public colleges and universities.

Details

Sustainability and Governance
Type: Book
ISBN: 978-1-78441-654-6

Keywords

Book part
Publication date: 7 June 2010

Beth Florin, Kevin F. Hallock and Douglas Webber

This paper is an investigation of the pay-for-performance link in executive compensation. In particular, we document main issues in the pay–performance debate and explain…

Abstract

This paper is an investigation of the pay-for-performance link in executive compensation. In particular, we document main issues in the pay–performance debate and explain practical issues in setting pay as well as data issues including how pay is disclosed and how that has changed over time. We also provide a summary of the state of CEO pay levels and pay mix in 2009 using a sample of over 2,000 companies and describe main data sources for researchers. We also investigate what we believe to be at the root of fundamental confusion in the literature across disciplines – methodological issues. In exploring methodological issues, we focus on empirical specifications, causality, fixed-effects, first-differencing, and instrumental variable issues. We then discuss two important but not yet well-explored areas, international issues, and compensation in non-profits. We conclude by examining a series of research areas where further work can be done, within and across disciplines.

Details

Research in Personnel and Human Resources Management
Type: Book
ISBN: 978-0-85724-126-9

Book part
Publication date: 29 November 2012

Sung S. Kwon

This chapter examines the sensitivity of executive incentive compensation to market-adjusted returns and changes in earnings for high-tech (HT) firms vis-à-vis firms (NHT…

Abstract

This chapter examines the sensitivity of executive incentive compensation to market-adjusted returns and changes in earnings for high-tech (HT) firms vis-à-vis firms (NHT) in other industries. Consistent with the hypotheses, this chapter uncovers the following evidence: First, the sensitivity of executive bonus compensation to market-adjusted returns is weaker and more symmetric for HT firms than for NHT firms (a control group), which implies that the problem of ex post settling up, documented in Leone et al. (2006), may be far less serious in HT firms than in NHT firms. Second, the sensitivity of executive incentive compensation to earnings changes is generally more symmetric for HT firms than for NHT firms, which is consistent with the view that HT firms engage in more conservative financial reporting than NHT firms. Third, the sensitivity of executive equity-based compensation to market-adjusted returns is significantly negative for HT firms compared to NHT firms when bad earnings news is announced. The results imply that HT firms, with a strong motive to attract and retain their highly talented executives, judiciously use both short-term and long-term incentive compensation schemes by compensating for a reduction of short-term incentive pay with an increase in long-term incentive pay. The issue of executive compensation has been a longstanding one in the United States and Canada, and the issue of executive compensation-performance sensitivity for HT firms is also relevant in this era of the information technology (IT) revolution, especially when prior research has shown that HT firms differ from NHT firms in their market-valuation process.

Details

Transparency and Governance in a Global World
Type: Book
ISBN: 978-1-78052-764-2

Keywords

Article
Publication date: 7 December 2021

Chenxuan Chen and Abeer Hassan

This paper aims to contribute to the discussion on the executives’ team and firm performance by investigating the relationships between executivescompensation

Abstract

Purpose

This paper aims to contribute to the discussion on the executives’ team and firm performance by investigating the relationships between executivescompensation, management gender diversity and firm financial performance in growth enterprises market (GEM) listed firms in China.

Design/methodology/approach

Data are collected from 461 companies listed on GEM boards during the period from the year 2016 to 2018. Specifically, executivescompensation and female executives are set as the independent variables, and the proxy selected of corporate performance is Tobin’s Q ratio.

Findings

The results show that the correlation between corporate performance and executive cash payment is not significant, while executives’ equity-based compensation shows a significant positive correlation with firm performance. In addition, the participation of female executives is negatively associated with firm performance.

Research limitations/implications

The results have practical implications for governments, policymakers and regulatory authorities, by indicating the importance of women to corporate success. In particular, the findings of this paper emphasize the specific background of GEM in China and provide empirical support for the value of women’s participation in corporate governance. In addition, the finding on the relationship between executive compensation and corporate performance of GEM listed companies provides guidance for the establishment of a performance compensation system of GEM listed companies in China.

Originality/value

This paper provides new evidence for the current literature of executive team and corporate performance. This is the first paper to adopt triangulation in theories from different disciplines including optimal contractual approach, managerial power approach as new perspectives of agency theory, upper echelons theory, motivational-hygiene theory and women leadership style theory. The results will contribute to provide guidance for enterprises to formulate an efficient compensation system and build a reasonable senior management team structure.

Details

International Journal of Accounting & Information Management, vol. 30 no. 1
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 21 October 2021

Ailing Pan, Qian Wu and Jingwei Li

This paper aims to study the impact of external fairness of executive compensation on M&A premium, and examine the moderate role of institutional investors. The high M&A…

Abstract

Purpose

This paper aims to study the impact of external fairness of executive compensation on M&A premium, and examine the moderate role of institutional investors. The high M&A premium is the main factors that induce the huge impairment of listed companies’ goodwill and the plummeting performance. Executives are the decision-makers of M&As, and their decision-making process is inevitably affected by the psychological factors. In recent years, institutional investors have become an important external force that can affect the governance of listed companies.

Design/Methodology/Approach

The authors use M&A data of listed companies from 2008 to 2018 and use OLS regression to test the relationship between executive compensation fairness and M&A premium.

Findings

The results show that the lower the external fairness of executive compensation, the greater the M&A premium. Institutional investors can effectively reduce the impact of external compensation unfairness on M&A premiums. The mechanism tests show that executives' psychological perception of fairness induced by external unfairness reduces their motivation to work and prompts them to use high premium to seek alternative compensation incentives. Further examinations of executive characteristics and corporate characteristics show that the role of external unfairness in executive compensation in driving M&A premiums is more pronounced in companies with longer executive tenure, weaker executive reputation incentives and private property.

Originality/Value

This paper enriches the research on the pre-factors of M&A premiums from the perspective of executives’ psychological perception of fairness, provides evidence that institutional investors play a positive governance role and provides decision-making references for companies to take corresponding measures to reduce M&A premium risks.

Details

Nankai Business Review International, vol. 13 no. 1
Type: Research Article
ISSN: 2040-8749

Keywords

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

Keywords

Article
Publication date: 6 April 2018

Reilly White

The purpose of this paper is to investigate how the structure of both CEO and non-CEO executive compensation affects the overall risk of a firm. The author focuses on the…

Abstract

Purpose

The purpose of this paper is to investigate how the structure of both CEO and non-CEO executive compensation affects the overall risk of a firm. The author focuses on the interplay between CEO and non-CEO executive compensation structure.

Design/methodology/approach

The author uses a hand-collected pension-database that employs both OLS and two-stage least squares regressions to determine the effects of inside debt on default risk using the distance-to-default framework. The database consists of 8,965 executive-year data points from 272 firms.

Findings

This paper accomplishes three major objectives: first, the author presents a significant extension of Sundaram and Yermack (2007) by including non-CEO executives; the author demonstrates how the differences in inside debt between CEO and non-CEO executives are directly related to firm risk; and that funding these pensions via a Rabbi Trust eliminates most of the risk-shifting effects. Firms with the lowest compensation leverage gap between CEO and non-CEO executives were most likely to observe the agency costs associated with high executive leverage. When compensation leverage structures were substantially different, or the pension was pre-funded, these effects are neutralized.

Originality/value

To the best of the author’s knowledge, the first paper addresses the effects of Rabbi Trusts on risk-shifting behavior between both CEOs and non-CEO executives. Further, the author extends Sundaram and Yermack (2007) using a hand-collected database six times larger than the original paper. By focusing on the “leverage gap” between CEOs and non-CEO executives, the author presents unique evidence that underlines the risk dynamics between CEOs and their boards.

Details

International Journal of Managerial Finance, vol. 14 no. 3
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 1 February 1997

Jean McGuire

The relationship between the clarity of proxy statement presentation of executive compensation, the level of compensation and firm performance was examined Consistent with…

Abstract

The relationship between the clarity of proxy statement presentation of executive compensation, the level of compensation and firm performance was examined Consistent with the argument that firms attempt to avoid potential threats to legitimacy, clarity of presentation and the level of executive compensation were negatively related. There was no relation between firm performance and presentation clarity. Management stock ownership was not related to clarity of presentation.

Details

The International Journal of Organizational Analysis, vol. 5 no. 2
Type: Research Article
ISSN: 1055-3185

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