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Executive compensation and firm performance: adjustment dynamics, non-linearity and asymmetry

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Author Info

  • Giorgio Canarella

    (Department of Economics and Statistics, California State University, Los Angeles, USA)

  • Mahmoud M. Nourayi

    (Department of Accounting, Loyola Marymount University, LA, USA)

Abstract

The relationship between executive compensation and firm performance is a field of intense theoretical and empirical research. The purpose of this study is to gain additional insights into the nature of this relationship by examining empirically the relatively unexplored areas of its dynamics of adjustment, as well as its non-linearity. The findings of this study show strong evidence in support of the view that (a) executive compensation is characterized by a dynamic process of adjustment, and (b) the relationship between executive compensation and firm performance is non-linear and asymmetric. Additionally, the structure of asymmetry is found to be dependent on the measure of performance. Convexity characterizes the asymmetry of the relationship between executive compensation and market returns, while concavity distinguishes the asymmetry of the relationship between executive compensation and accounting returns. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1368
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 29 (2008)
Issue (Month): 4 ()
Pages: 293-315

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Handle: RePEc:wly:mgtdec:v:29:y:2008:i:4:p:293-315

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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Cited by:
  1. Alok Bhargava, 2013. "Executive compensation, share repurchases and investment expenditures: econometric evidence from US firms," Review of Quantitative Finance and Accounting, Springer, vol. 40(3), pages 403-422, April.

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