The Relationship between Underinvestment, Overinvestment and CEO's Compensation

Baxamusa, Mufaddal H.

doi:10.1142/s0219091512500142

Cited by 13 publications

(9 citation statements)

References 32 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: 72%

“…First, compensation is one of the most widely used tools to direct managers' decisions and actions to be in line with the interests of shareholders. Compensation is an organizational factor that has been shown to play a role in influencing managers' decisions and behavior (Malmendier & Tate, 2015;Baxamusa, 2012;Malmendier & Tate, 2005a;2005b). Second, we argue that religiosity contains moral or ethical values that is in line with CSR in which moral or ethical values are one of the dimensions.…”

Section: Introductionmentioning

confidence: 78%

“…Some others show that CSR-related performance can increase CEO compensation (Berrone & Gomez-mejia, 2009). Although finance literature has largely discussed the relationship between manager compensation and managers' investment decisions (Baxamusa, 2012;Aggarwal & Samwick, 2006), however, research linking manager compensation with manager CSR decisions is still lacking.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

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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: 72%

Section: Introductionmentioning

confidence: 78%

Section: Hypotheses Developmentmentioning

confidence: 99%

See 1 more Smart Citation

The effect of compensation and religiosity on managers’ CSR decision

Kusuma

Adawiyah

Pramuka

et al. 2020

Jurnal Keuangan Dan Perbankan

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“…Additionally, Strobl [36] summarizes the relationship between managerial incentives and investment policy. Furthermore, Baxamusa [37] examined policies to reduce risk or overinvestment in production capacity through incentives.…”

Section: Literature Reviewmentioning

confidence: 99%

Analysing Managers’ Financial Motivation for Sustainable Investment Strategies

2019

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The purpose of the research is to examine the importance of financial rewards and managers’ motivations, including sustainable investment projects. For that, the role of financial motivation for managers is analysed to understand strategic priorities for sustainable investment policies. Panel data for non-financial listed companies in China are used to determine the best-fit values of the proposed model, and the results of the Lagrange multiplier (LM) and Hausman tests are discussed for sustainable investment strategies. The results demonstrate that both low-paid and highly-paid managers in valuable project firms tend to be conservative and that managers consolidate their positions through underinvestment. This finding is clear evidence that managers are reluctant to take a risk on sustainable investment strategies. However, highly-paid managers of non-valuable project firms are generally willing to obtain high productivity through advanced technologies. The results are also generalized for strategies that are related to project managers’ financial motivation to increase the efficiency of sustainable investment decisions.

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“…One class of models (Miller 1977;Hong et al 2006;Baxamusa 2012) predict that the diversity of opinion about the future cash flows of the firm lead to decrease in demand for the firm's stocks. The implication for the acquirer is as follows.…”

Section: Relevant Models For Information Asymmetrymentioning

confidence: 99%

Network centrality and mergers

Baxamusa

Javaid

Harery

2013

Rev Quant Finan Acc

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The Relationship between Underinvestment, Overinvestment and CEO's Compensation

Cited by 13 publications

References 32 publications

The effect of compensation and religiosity on managers’ CSR decision

The effect of compensation and religiosity on managers’ CSR decision

Analysing Managers’ Financial Motivation for Sustainable Investment Strategies

Network centrality and mergers

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