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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Publisher 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 Download reference. The following formats are available: HTML
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