Executive incentive compatibility and selection of governance mechanisms

Xu, Rong; Zhang, Guangli; Zhang, Junyan; Zheng, Zhenzhe

doi:10.1111/acfi.12323

Cited by 5 publications

(5 citation statements)

References 79 publications

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“…So, how to design an executive compensation contract appears to be especially important. The literature suggests to adopt the form of incentive compatibility constraint (Varas, 2017; Xu et al , 2018). To achieve this, the contracts are often based on accounting data (Watts and Zimmerman, 1999).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

An empirical study of the relationship between accounting conservatism and executive compensation-performance sensitivity

Zhang

Gao

Zeng

2019

IJAIM

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Purpose The purpose of this paper is to study the relationship between accounting conservatism and executive compensation-performance sensitivity with a view to identify the influence of accounting conservatism on the efficiency of executive compensation contracts. Design/methodology/approach This study uses multiple regression models based on the approach of Iyengar and Zampelli (2010), Clarkson et al. (2011) and Huang and Kisgen (2013) with the data from all of China’s listed non-financial firms over the period of 10 years to test the relationship between accounting conservatism and the sensitivity of executive compensation-performance. Findings This study finds a positive association between executive compensation and accounting-based measure of performance. More importantly, it reveals that conservatism has a positive relation with the executive compensation-performance sensitivity after controlling for a number of firm-specific factors and control variables. This study shows that the sensitivity of executive compensation to firm performance is higher for firms with higher accounting conservatism. Originality/value This is one of the few studies to examine the relationship between accounting conservatism and executive compensation-performance sensitivity. It provides supportive evidence to the argument that accounting conservatism, being an efficient governance mechanism, can help mitigate information risk and moral risk for agency problems.

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Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

An empirical study of the relationship between accounting conservatism and executive compensation-performance sensitivity

Zhang

Gao

Zeng

2019

IJAIM

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“…Executive compensation is a corporate governance mechanism which is used to align the interests of the executives with those of the shareholders and other stakeholders (Flammer, Hong, and Minor 2019;Xu et al 2020). Therefore, in view of the complexity of the subject matter, the idiosyncratic socio-economic factors prevailing in South Africa as a developing economy, and following similar studies conducted in executive compensation, agency theory forms the theoretical foundation of the current study.…”

Section: Theoretical Frameworkmentioning

confidence: 97%

Executive Compensation and Company Performance: Pre- and Post-Marikana Uprising Analysis

Nkwadi

Matemane

2022

SABR

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Background: Executive compensation has become a controversial topic globally. Recent and past incidents of labour unrest, including those that plagued the South African mining sector in 2012, highlighted the level of controversy on the subject. Purpose: The purpose of this study was to investigate the relationship between executive compensation and company performance in the mining sector of the Johannesburg Stock Exchange (JSE). Methodology: The study was quantitative in nature and used purposive sampling in selecting 28 mining companies listed on the JSE. Estimated generalised least squares (EGLS) and seemingly unrelated regression (SUR) were used to analyse unbalanced panel data spanning from 2007 to 2018. Findings: The results show that there is no relationship between executive compensation and market value added (MVA), revenue growth (RG), return on assets (ROA), and return on equity (ROE) both before and after the Marikana event. In the period before the Marikana event, 2007–2012, economic value added (EVA), share price (SP) and total assets (TA) were statistically significant in explaining variability in executive compensation. However, in the post-Marikana period, 2013–2018, only the TA and earnings per share (EPS) are statistically significant in explaining the variability in executive compensation. Value: This study offers a practical contribution to policy makers and practitioners on pertinent performance measures that can aid in minimising agency costs when designing executive compensation plans.

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“…I provide evidence supporting the model of Xu et al . () that some mechanisms are complementary and compatible. As in the literature, I find that incentives are an important mechanism (Casavecchia and Suh, ) but that this importance varies by a firm's setting (e.g.…”

Section: Introductionmentioning

confidence: 94%

“…Xu et al . () model executive incentive compatibility with other governance mechanisms. The above gives rise to the following hypothesis:…”

Section: Previous Literature and Hypothesis Developmentmentioning

confidence: 99%

Evidence of governance arbitrage by private equity sponsors

Schofield

2018

Accounting & Finance

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The motivation for private equity bids is not well understood, partly due to the private nature of their activity. This research contributes to understanding the merits of current-day private equity by examining whether ineffective governance of target public corporations contributes to the role that private equity fulfils. I examine the characteristics of large public target firms that receive a private equity bid to investigate the evidence that private equity is motivated to address ineffective governance. I find evidence the private equity is motivated by what is referred to as governance arbitrage and that this role is heightened when there are constraints such as the imposition of uniform governance practices within public corporations.

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Executive incentive compatibility and selection of governance mechanisms

Cited by 5 publications

References 79 publications

An empirical study of the relationship between accounting conservatism and executive compensation-performance sensitivity

An empirical study of the relationship between accounting conservatism and executive compensation-performance sensitivity

Executive Compensation and Company Performance: Pre- and Post-Marikana Uprising Analysis

Evidence of governance arbitrage by private equity sponsors

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