Non-financial performance measures, CEO compensation, and firms’ future value

Gan, Huiqi; Park, Myung S.; Suh, Sang-Hyun

doi:10.1016/j.jbusres.2020.01.002

Cited by 33 publications

(25 citation statements)

References 73 publications

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“…A higher executive pay may relieve these agency conflicts (Frydman, 2007;Gupta et al, 2018;Rjiba et al, 2021). Also, a firm with a lower equity cost may have retained more earnings to invest in better projects, increasing firm value and shareholders' wealth, and thus improving executives' rewards (Shen et al, 2010;James, 2013;Mishra, 2014;Chen et al, 2018;Gan et al, 2020).…”

Section: Research Hypothesis the Effect Of Institutional Innovation Of Executive Incentives On The Cost Of Equitymentioning

confidence: 99%

Research on the Effect of Executive Incentive Institutional Innovation on the Cost of Equity—Evidence From Chinese Listed Companies

Wang

Deng

2021

Front. Psychol.

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Executive incentive has long been a hot topic among academics and practitioners. With the continuous development of China's manager market, the spirit of innovation and entrepreneurship among executives has exerted a greater influence on corporate performance. Enterprise innovation is an important part of the entrepreneurial spirit. Moreover, China's supply-side reforms and compensation system of the state-owned enterprises (SOEs) have been advanced and innovative. Therefore, based on the manager human capital theory and the organizational innovation theory, and using 15,492 firm-year observations from China's Shanghai and Shenzhen A-share listed companies for the period 2005–2018, we constructed various models, including the Gorden model, the Growth Rate of Price–Earnings Ratio model (PEG), the Ohlson and Juettner-Nauroth model (OJ), and the Capital Asset Pricing model (CAPM), to measure the cost of equity. We investigated the effect of the institutional innovation of executive incentives on the cost of equity, and the heterogeneous influence of China's special property rights system on the relationship between the two. We found that the innovations of the executive incentive system have a positive governance effect on the cost of equity. In particular, executive compensation incentives significantly reduce a company's equity costs. We also find that the state-owned property rights may weaken the positive effect of institutional innovation of executive incentives. Furthermore, China's executive incentives system and corporate governance mechanism are imperfect; and therefore, institutional innovation is a matter of great urgency and more innovative ideas for the manager market need to be introduced. China's listed companies should give full play to the spirit of innovation and entrepreneurship, constantly innovating incentive-based compensation systems of companies, and establishing a scientific and innovative concept of the cost of equity. The findings are robust after controlling for potential endogeneity concerns.

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Section: Research Hypothesis the Effect Of Institutional Innovation Of Executive Incentives On The Cost Of Equitymentioning

confidence: 99%

Research on the Effect of Executive Incentive Institutional Innovation on the Cost of Equity—Evidence From Chinese Listed Companies

Wang

Deng

2021

Front. Psychol.

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“…The confounding effects of profit shocks common to all can be eliminated by measuring performance relative to the average of others operating in similar settings (Holmstrom 1979, Lazear andRosen 1981). Subjective evaluations by boards or managers (Bushman et al 1996) and nonfinancial measures (Gan et al 2020) should be used to capture information that is not reflected in market-and accounting-based metrics. Long-term performance indicators can be used to avoid short-termism.…”

Section: Performance Evaluation and Reinforcing Processesmentioning

confidence: 99%

When Reinforcing Processes Generate an Outcome-Quality Dip

Denrell

Liu

2021

Organization Science

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When does market success indicate superior merit? We show that when consumer choices between products with equal prices depend on quality but also on past popularity, more popular products are not necessarily of higher quality. Rather, a medium level of popularity may be associated with lower quality than lower levels of popularity. Using a formal model, we show that this kind of nonmonotonic association occurs when reinforcing processes are strong. More generally, a dip can occur when outcomes depend on both quality and resources and the latter are allocated bimodally, with some being given a lot of resources and most receiving little. Empirically, we illustrate that such a dip occurs in the association between movie theater sales and ratings. The presence of a dip in the outcome-quality association complicates learning from market outcomes and evaluation of individuals and new ventures, challenges the legitimacy of stratification systems, and creates opportunities for sophisticated evaluators who understand the dip.

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“…Non-financial Information in Forecasting and Performance Evaluation [8] ask whether non-financial performance measures (NFPMs) included in CEO bonus contracts are complementary to equity-based compensation, and whether they jointly explain future firm value. Overall, our findings suggest that equity-based compensation is more effective in aligning managerial efforts and actions with firms' long-term value when firms include NFPMs in CEO bonus contracts.…”

Section: Studies Dealing With the Use Ofmentioning

confidence: 99%

Do Non-Financial Information Reduce the Fraud Risk Management?

Shehata¹

2020

JBE

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The aim of this study is to clarify the role of non-financial information on reducing the fraud risk management. In fact existing studies on the potential effect of this type of information on fraud risk management is still less explored in the development countries. Departing from a sample of Egyptian auditors and using a questionnaire, this study argues that non-financial information is crucial to reduce the fraud risk management.

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Non-financial performance measures, CEO compensation, and firms’ future value

Cited by 33 publications

References 73 publications

Research on the Effect of Executive Incentive Institutional Innovation on the Cost of Equity—Evidence From Chinese Listed Companies

Research on the Effect of Executive Incentive Institutional Innovation on the Cost of Equity—Evidence From Chinese Listed Companies

When Reinforcing Processes Generate an Outcome-Quality Dip

Do Non-Financial Information Reduce the Fraud Risk Management?

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