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Heterogeneity in the Effect of Managerial Equity Incentives on Firm Value

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  • Bradley W. Benson
  • Hui L. James
  • Jung Chul Park

Abstract

We document significant heterogeneity in the relation between chief executive officer (CEO) equity incentives and firm value using quantile regression. We show that CEO delta is more effective in the presence of ample investment opportunities, while CEO vega is more beneficial for firms lacking investment opportunities. Further, Tobin's Q increases in CEO delta for more risk‐tolerant firms but increases in CEO vega for more risk‐averse firms. We also observe that higher monitoring intensity after the Sarbanes‐Oxley Act reduces CEO delta's role in compensation. Risk aversion alters the optimal incentive‐value relation, and the nature of this relation also depends on the level of Tobin's Q.

Suggested Citation

  • Bradley W. Benson & Hui L. James & Jung Chul Park, 2019. "Heterogeneity in the Effect of Managerial Equity Incentives on Firm Value," The Financial Review, Eastern Finance Association, vol. 54(3), pages 583-638, August.
    • Handle: RePEc:bla:finrev:v:54:y:2019:i:3:p:583-638
    DOI: 10.1111/fire.12185
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    Cited by:

    1. David Hillier & Patrick McColgan & Athanasios Tsekeris, 2022. "How did the Sarbanes–Oxley Act affect managerial incentives? Evidence from corporate acquisitions," Review of Quantitative Finance and Accounting, Springer, vol. 58(4), pages 1395-1450, May.
    2. James, Hui L., 2023. "Social capital and the riskiness of trade credit," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    3. Clement Olalekan Olaniyi & Olaolu Richard Olayeni, 2020. "A new perspective into the relationship between CEO pay and firm performance: evidence from Nigeria’s listed firms," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 250-277, December.
    4. Denise Rousseau & Byeong Jo Kim & Ryan Splenda & Sarah Young & Jangbum Lee & Donna Beck, 2023. "Does chief executive compensation predict financial performance or inaccurate financial reporting in listed companies: A systematic review," Campbell Systematic Reviews, John Wiley & Sons, vol. 19(4), December.

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