Executive compensation and executive incentive problems

Lewellen, Wilbur G.; Loderer, Claudio; Martin, Kenneth J.

doi:10.1016/0165-4101(87)90009-7

Cited by 317 publications

(191 citation statements)

References 23 publications

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“…Offering an extra incentives or bonuses will motivate the management to act based on the interest of shareholders. Based on a few studies that were done before, the relationship of agency can be controlled through linking the pay of CEO such as bonuses, restricted stock and stock options to the performance of the firm (Haugen and Senbet, 1981;Agrawal and Mandelker, 1989;Lewellen, Loderer and Martin, 1987;Abowd, 1990). However, the conflict between principal and agent is still remained as an issue among the firms.…”

Section: "The Directors Of Such Companies However Being the Managermentioning

confidence: 99%

Relationship between CEO Pay and Firm Performance: Evidences from Malaysia Listed Firms

Ismail¹,

Yabai²,

Hahn³

2014

IOSRJEF

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Section: "The Directors Of Such Companies However Being the Managermentioning

confidence: 99%

Relationship between CEO Pay and Firm Performance: Evidences from Malaysia Listed Firms

Ismail¹,

Yabai²,

Hahn³

2014

IOSRJEF

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“…7. Lewellen, Loderer, and Martin (1987) use a somewhat similar dependent variable to examine different issues. They examine the association between the ratio of after-tax stock-related compensation to total after-tax compensation and various agency-related firm characteristics.…”

Section: Discussionmentioning

confidence: 99%

“…Empirical studies that explore the role of agency costs in compensation arrangements include Lewellen, Loderer, and Martin 1987;Smith and Watts 1992;Sloan 1993;Gaver and Gaver 1993;Matsunaga 1995;Yermack 1995;Baber, Janakiraman, and Kang 1996;and Bushman, Indjejikian, and Smith 1996. These studies formed the basis of our controls for agency costs.…”

Section: Control Variablesmentioning

confidence: 99%

“…These proxies include the 60-month variance of market-adjusted stock returns (Lewellen et al 1987;Sloan 1993) and the ratio of 60-month variance of market-adjusted stock returns to 60-month variance of total stock returns (Sloan 1993;Yermack 1995). Growth opportunities are also considered to be related to agency costs due to information asymmetry between managers and capital providers over the future investment opportunities of the firm.…”

Section: Control Variablesmentioning

confidence: 99%

“…Growth opportunities are also considered to be related to agency costs due to information asymmetry between managers and capital providers over the future investment opportunities of the firm. Variables commonly used to proxy for growth opportunities include the five-year logarithmic growth in total assets (Lambert and Larcker 1987), the book-to-market ratio (Lewellen et al 1987;Smith and Watts 1992;Gaver and Gaver 1993), and an indicator variable for research and development firms (Gaver and Gaver 1993;Baber et al 1996;Bushman et al 1996;Douglas et al 1997). An indicator variable was used to avoid constraining the influence of the highly skewed R&D expense (even when deflated) to be linear.…”

Section: Control Variablesmentioning

confidence: 99%

See 2 more Smart Citations

The Impact of Financial and Tax Reporting Incentives on Option Grants to Canadian CEOs

KLASSEN¹,

Waterloo²,

MAWANI³

et al. 2000

Contemporary Accounting Research

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This study explores the effects of financial and tax reporting incentives on options granted to chief executive officers in Canada. Extant studies with a similar objective (Yermack 1995;Matsunaga 1995) explore predominantly nonqualified U.S. option grants that are deductible to the extent that the options are in the money at the time of exercise. In contrast, Canadian firms do not get a tax deduction for their stock option grants at any time. In both countries, no expense is recorded for financial reporting purposes. As a result, the financial reporting and tax reporting trade-off is more pronounced in the Canadian setting of this study compared with the U.S. setting.We measure option granting behavior as the ratio of the Black-Scholes value of stock option grants to the sum of cash compensation and the value of stock option grants. Using a sample of 806 firm-year observations during the period 1993-95, we find that observed option grants are significantly correlated with proxies for short-run financial reporting incentives. We also find evidence that option granting behavior is correlated with proxies for tax incentives. Keywords Stock options; Taxation; Financial reporting; Hypothesis testing CondenséLe recours aux options d'achat d'actions dans le régime de rémunération des cadres peut augmenter le bénéfice déclaré dans le contexte de l'information financière puisque la charge au titre des salaires afférente aux options dans l'état des résultats est habituellement nulle. Il se peut donc que les sociétés plus sensibles au bénéfice déclaré (c'est-à-dire celles pour qui les coûts de l'information financière sont plus élevés) soient davantage susceptibles d'octroyer à leurs cadres des options d'achat d'actions, de manière à éviter la constatation Plus précisément, le contexte canadien est fort différent du contexte des États-Unis sur lequel se sont penchés Yermack (1995) et Matsunaga (1995. Ces derniers testent dans leurs études les données des États-Unis relatives à l'octroi d'options majoritairement sans restriction dont l'avantage connexe peut être déduit par la société au moment de la levée. Les auteurs de la présente étude, au contraire, examinent les options octroyées au Canada pour lesquelles aucune déduction fiscale n'est permise au moment de la levée. Le recours aux options exige donc des sociétés canadiennes qu'elles parviennent à un compromis entre les avantages de l'information financière et les coûts fiscaux, tandis que le recours aux options sans restriction aux États-Unis offre le meilleur des deux mondes (la déductibilité fiscale et aucune charge dans l'état des résultats). En conséquence, l'élément fiscal dissuasif que comporte l'octroi d'options devrait être plus accentué dans la présente étude que dans celle de Yermack (1995) ou de Matsunaga (1995). Le principal apport des auteurs est ici de documenter les conséquences de l'absence de déduction fiscale sur l'octroi par les sociétés d'options d'achat d'actions aux cadres. Les auteurs recueillent également d'autres faits démontrant l'inci...

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Investment decisions and managerial compensation design in the presence of product market rivalry

Goering

Harikumar

1999

Manage. Decis. Econ.

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We consider an economy where firms operate in an imperfectly competitive industry and mutually affect each others’ investment opportunities. Each firm is assumed to face a mutually exclusive choice of investing in either a short‐ or a long‐term project. For example, firm i's commitment to a short‐term project cuts into firm j's market in the short‐term but frees‐up firm j's long‐term market, and vice versa. Our results show that, even in the absence of an owner–manager conflict, the owner anticipates the product market rivalry and optimally compensates their managers with short‐ as well as long‐term compensation. Although the optimal compensation design induces myopic investment decisions, it is shown to be in the owners’ best interest. Copyright © 1999 John Wiley & Sons, Ltd.

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Executive compensation and executive incentive problems

Cited by 317 publications

References 23 publications

Relationship between CEO Pay and Firm Performance: Evidences from Malaysia Listed Firms

Relationship between CEO Pay and Firm Performance: Evidences from Malaysia Listed Firms

The Impact of Financial and Tax Reporting Incentives on Option Grants to Canadian CEOs

Investment decisions and managerial compensation design in the presence of product market rivalry

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