Managerial Private Benefits and Overinvestment

Lei, Zhan; Cai, Ming; Wang, Yaoyao; Yu, Jing

doi:10.2753/ree1540-496x500308

Cited by 15 publications

(15 citation statements)

References 52 publications

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“…Studies examining the effect of compensation on managers' decision and behavior still show a mixed result. Some researchers provided evidences of the alignment effect of compensation (Lei et al, 2014;Baxamusa, 2012;Broussard, Buchenroth, & Pilotte, 2004), but some others demonstrated an entrenchment effect where compensation actually motivates managers to take action which is not in line with the interests of shareholders (Baxamusa, 2012;Aggarwal & Samwick, 2006). We argue that this mixed result might be due to two reasons, the compensation effect on managerial decision and behavior might be contextual in nature.…”

Section: The Effect Of Compensation and Religiosity On Managers' Csr mentioning

confidence: 73%

The effect of compensation and religiosity on managers’ CSR decision

Kusuma

Adawiyah

Pramuka

et al. 2020

Jurnal Keuangan Dan Perbankan

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This study aims to examine the relationship between compensation schemes and religiosity and managers' investment decisions in CSR. We argue that compensation scheme and managers' level of religiosity associate with managers' choice whether to invest in valueincreasing or value-decreasing CSR. Data were collected through a laboratory experiment which involved 100 participants. The Chi-square test results show that managers who work under a performance-based compensation tend to choose a value-increasing CSR. Meanwhile, managers who work under nonperformance-based compensation tend to choose a value-decreasing CSR. However, this study failed to prove the relationship between manager's religiosity level and CSR investment decision made by managers. A small variance of our participants' religiosity level may lead to this finding. This research contributes to the CSR and behavioral finance literature by providing an understanding of how compensation and religiosity can direct managers' investment decisions on CSR. Our results imply the importance of designing an appropriate compensation scheme in an organization in order to direct managers to make an optimal CSR decision. Abstrak Penelitian ini bertujuan untuk menguji hubungan antara skema kompensasi dan religiusitas dengan keputusan investasi manajer dalam CSR. Kami berpendapat bahwa skema kompensasi dan tingkat religiusitas manajer terkait dengan pilihan manajer apakah akan berinvestasi dalam CSR yang meningkatkan atau menurunkan nilai. Pengumpulan data dilakukan melalui eksperimen laboratorium yang melibatkan 100 partisipan. Hasil uji Chi-square menunjukkan bahwa manajer yang bekerja di bawah kompensasi berbasis kinerja cenderung memilih CSR yang meningkatkan nilai. Sementara itu, manajer yang bekerja di bawah kompensasi berbasis non-kinerja cenderung memilih CSR yang menurunkan nilai. Namun penelitian ini gagal membuktikan hubungan antara tingkat religiusitas manajer dengan keputusan investasi CSR yang dibuat oleh manajer. Variasi kecil dari tingkat religiusitas peserta kami dapat mengarah pada temuan ini. Penelitian ini berkontribusi pada literatur CSR dan behavioral finance dengan memberikan pemahaman tentang bagaimana kompensasi dan religiusitas dapat mengarahkan keputusan investasi manajer pada CSR. Hasil kami menyiratkan pentingnya merancang skema kompensasi yang sesuai dalam suatu organisasi untuk mengarahkan manajer untuk membuat keputusan CSR yang optimal.

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Section: The Effect Of Compensation and Religiosity On Managers' Csr mentioning

confidence: 73%

The effect of compensation and religiosity on managers’ CSR decision

Kusuma

Adawiyah

Pramuka

et al. 2020

Jurnal Keuangan Dan Perbankan

View full text Add to dashboard Cite

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“…Based on Richardson (2006), and following subsequent studies such as Goh et al (2016), Lei et al (2014), Liu and Bredin (2010), Huang et al (2015), and Zhang and Su (2015), we propose to use model (1) as a means to estimate firms’ level of overinvestment: where INEW i,t is new investment form firm i in year t , scaled by total assets. This variable depends on the lagged new investment (INEW t -1 ); the firm's growth opportunities (BM) measured as the book value of equity and liabilities divided by the sum of equity market value and book value of liabilities 2 ; the firm's leverage (LEV t -1 ) measured as the book value of total debt deflated by the sum of book value of total debt and the book value of equity; the firm's cash balance (CASH t -1 ); the log of the number of years the firm has been listed (AGE t- 1 ); the log of a firm's total assets (SIZE t -1 ); and the firm's stock returns (STOCKRETURN t -1 ).…”

Section: Model and Variablesmentioning

confidence: 99%

“…2Although different to that of Richardson (2006), this measure has been used in a number of recent studies (Di Meo, 2014; Lei et al, 2014; Lin, 2017; Ling et al, 2016; Shen et al, 2015) that also follow Richardson's model. Note that same as in Richardson (2006) the relation between the BM variable and a firm's growth opportunities is negative.…”

Section: Model and Variablesmentioning

confidence: 99%

“…Following Lei et al (2014), we consider the positive residual (ε i,t > 0) of the model (1) as a proxy of the firm's overinvestment (OVERI). The higher the positive residual, the higher the overinvestment.…”

Section: Model and Variablesmentioning

confidence: 99%

“…What failed in these cases? Empirical research has tested the role of governance mechanisms such as executive remuneration (Agha, 2016; Eisdorfer et al, 2013; Lei et al, 2014), ownership structure (Andres, 2011; Goergen and Renneboog, 2001; Goh et al, 2016; Pindado and de la Torre, 2009; Wei and Zhang, 2008), or the level of shareholder rights (Kyröläinen et al, 2013) to alleviate corporate overinvestment. In addition, the literature has supported the role of leverage as a mechanism which reduces this overinvestment problem by decreasing the free cash flow under managerial discretionary control (Ahn et al, 2006; Aivazian et al, 2005b; D'Mello and Miranda, 2010; Fernandez, 2011; Firth et al, 2008; Harvey et al, 2004; Lang et al, 1995).…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Overinvestment, leverage and financial system liquidity: A challenging approach

López‐de‐Foronda

López-de-Silanes

López‐Iturriaga

et al. 2019

BRQ Business Research Quarterly

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The aim of this paper is to analyse the influence of financial system liquidity and corporate leverage on a firm's overinvestment. We posit that when external funds are easily available, as in expansionary monetary periods, debt loses its traditional role as a managerial control mechanism. Instead, the supply of systemic liquidity results in corporate leverage exacerbating the problem of overinvestment. Using a sample of over 12,400 companies from 25 OECD countries between 2003 and 2014, our results show a significant and positive relationship between corporate leverage and overinvestment when the liquidity of the financial system is high, confirming the shift in the role played by leverage. At the macroeconomic level, our research raises certain caveats concerning worldwide liquidity injections. At the microeconomic level, our study shows that the disciplinary role of debt might become a false friend when money abounds.

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