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Agency and Corporate Investment: The Role of Executive Compensation and Corporate Governance

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Author Info

  • Sok-Hyon Kang

    (George Washington University)

  • Praveen Kumar

    (University of Houston)

  • Hyunkoo Lee

    (Hong Kong University of Science and Technology)

Abstract

The agency theory of the firm implies that executive incentive compensation and corporate investment policies are endogenously determined. We estimate jointly the relationship between long-term corporate investment and CEO incentive compensation structure, while considering the strength of corporate governance mechanisms. The analysis indicates that long-term business investment is positively related to the weight placed on equity-based incentive compensation, after controlling for internal financing constraints and the quality of the investment opportunity set. We also confirm that CEO compensation structure is influenced by factors that represent the strength of the firm's internal governance mechanisms.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 79 (2006)
Issue (Month): 3 (May)
Pages: 1127-1148

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Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:3:p:1127-1148

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Web page: http://www.journals.uchicago.edu/JB/

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Cited by:
  1. Mantecon, Tomas & Poon, Percy, 2009. "An analysis of the liquidity benefits provided by secondary markets," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 335-346, February.
  2. Chen, Yenn-Ru & Ma, Yulong, 2011. "Revisiting the risk-taking effect of executive stock options on firm performance," Journal of Business Research, Elsevier, vol. 64(6), pages 640-648, June.
  3. Ei Yet Chu & Saw Imm Song, 2012. "Executive Compensation, Earnings Management and Over Investment in Malaysia," Asian Academy of Management Journal of Accounting and Finance, Penerbit Universiti Sains Malaysia, vol. 8(Supp. 1), pages 13-37.
  4. Humphery-Jenner, Mark L., 2012. "Internal and external discipline following securities class actions," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 151-179.
  5. Francis, Bill & Hasan, Iftekhar & Sharma, Zenu, 2011. "Incentives and innovation: evidence from CEO compensation contracts," Research Discussion Papers 17/2011, Bank of Finland.

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