CEO Stock‐Based Incentive Compensation and Firm Performance: A Quantile Regression Approach

Abstract

This study employs the quantile regression model to examine the non-monotonic impact of CEO stock-based compensation on firm performance, using the data for U.S. non-financial firms from 1993 to 2005. The results indicate that while the impact of CEO stock-based pay on firm performance is positive for firms in the higher earnings quantile levels, the impact is negative for firms in the lower levels. In addition, the "V-shaped" relationship between CEO stock-based pay and firm performance satisfactorily explains the longstanding disagreement among earlier studies with regard to whether CEO stock-based pay can enhance firm performance. Furthermore, the quantile-varying pattern of the impact of stock-based compensation on firm performance is robust after controlling for the industrial and yearly effects. It is also robust to the use of the payfor-performance sensitivity as an alternative explanatory variable or the market-based measure of performance as the dependent variable, or the consideration of the suspected endogenous problem between firm performance and stock-based compensation.

Do board characteristics drive firm performance? An international perspective

“…We have conducted a robustness check in order to assess if our findings change in the presence of an alternative measure for firm performance. Concretely, we use as proxy variable for firm performance the ROE ratio (return on equity), measured as the ratio of net profit over total equity, following Matolcsy and Wright (2011) and Li et al (2015). In Table 9, we offer the results of all our models, namely, estimating all independent variables individually and all together in one model.…”

Sustainable compensation policies and its effect on environmental, social, and governance scores

“…First, there are studies focusing on the relationship between corporate governance or board characteristics and compensation policies (Lewellen et al, ; Zajac & Westphal, ; Conyon & Peck, ; Ryan & Wiggins, ; Hartzell & Starks, ; Conyon & He, ; Conyon, ; Ozkan, ; Laksmana, ; Petra & Dorata, ; Chhaochharia & Grinstein, ; Ozdemir & Upneja, .). Second, there are studies focusing on the relationship between compensation policies/incentives and firm performance, in both directions (Balafas & Florackis, ; Brick, Palmon, & Wald, ; Brown, Sturman, & Simmering, ; Cai, Jo, & Pan, ; Callan & Thomas, ; Coughlan & Schmidt, ; Kubo, ; Li, Yang, & Yu, ; Loomis, ; Mahoney & Thorne, ; McGuire, Dow, & Argheyd, ; Mehran, ; Raithatha & Komera, ). Third, there are studies analyzing the relationships among all the previous variables (Core, Holthausen, & Larcker, ; Lam, McGuinness, & Vieito, ).…”

Do market participants value earnings management? An analysis using the quantile regression method

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