IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v64y2023ics0275531922002458.html
   My bibliography  Save this article

Customer prospects and pay-performance sensitivity: Evidence from Korea

Author

Listed:
  • Park, Sohee

Abstract

This paper examines how business prospects in customer firms affect executive pay-performance sensitivity in supplier firms. Using Korean Input-Output Accounts Data and Business Confidence Index published by the Bank of Korea, I find that customer prospects are positively associated with executive pay-performance sensitivity and the association is extended to the components of performance in a way that encourages managers to better exploit the market opportunities. The positive association is more pronounced when the inter-industry data are more informative, when the firm belongs to a more competitive industry, and when the corporate governance is stronger.

Suggested Citation

  • Park, Sohee, 2023. "Customer prospects and pay-performance sensitivity: Evidence from Korea," Research in International Business and Finance, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:riibaf:v:64:y:2023:i:c:s0275531922002458
    DOI: 10.1016/j.ribaf.2022.101859
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275531922002458
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ribaf.2022.101859?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Guay, Wayne R. & Kepler, John D. & Tsui, David, 2019. "The role of executive cash bonuses in providing individual and team incentives," Journal of Financial Economics, Elsevier, vol. 133(2), pages 441-471.
    2. Carter, Mary Ellen & Choi, Jen & Sedatole, Karen L., 2021. "The effect of supplier industry competition on pay-for-performance incentive intensity," Journal of Accounting and Economics, Elsevier, vol. 71(2).
    3. Vidhi Chhaochharia & Yaniv Grinstein, 2009. "CEO Compensation and Board Structure," Journal of Finance, American Finance Association, vol. 64(1), pages 231-261, February.
    4. DeFond, Mark & Hu, Jinshuai & Hung, Mingyi & Li, Siqi, 2020. "The effect of fair value accounting on the performance evaluation role of earnings," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    5. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "The Other Side of the Trade-off: The Impact of Risk on Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 65-105, February.
    6. Haubrich, Joseph G, 1994. "Risk Aversion, Performance Pay, and the Principal-Agent Problem," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 258-276, April.
    7. J. Miguel Villas-Boas, 2004. "Consumer Learning, Brand Loyalty, and Competition," Marketing Science, INFORMS, vol. 23(1), pages 134-145, December.
    8. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    9. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
    10. Lauren Cohen & Andrea Frazzini, 2008. "Economic Links and Predictable Returns," Journal of Finance, American Finance Association, vol. 63(4), pages 1977-2011, August.
    11. Paul, Jonathan M, 1992. "On the Efficiency of Stock-Based Compensation," The Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 471-502.
    12. Gary C. Biddle & Gim S. Seow & Andrew F. Siegel, 1995. "Relative versus Incremental Information Content," Contemporary Accounting Research, John Wiley & Sons, vol. 12(1), pages 1-23, September.
    13. Bushman, Robert, 2021. "Cash-based bonus plans as a strategic communication, coordination and commitment mechanism," Journal of Accounting and Economics, Elsevier, vol. 72(2).
    14. Albuquerque, Ana, 2009. "Peer firms in relative performance evaluation," Journal of Accounting and Economics, Elsevier, vol. 48(1), pages 69-89, October.
    15. Rosenstein, Stuart & Wyatt, Jeffrey G., 1990. "Outside directors, board independence, and shareholder wealth," Journal of Financial Economics, Elsevier, vol. 26(2), pages 175-191, August.
    16. HOLMSTROM, Bengt, 1979. "Moral hazard and observability," LIDAM Reprints CORE 379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    17. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    18. Leone, Andrew J. & Wu, Joanna Shuang & Zimmerman, Jerold L., 2006. "Asymmetric sensitivity of CEO cash compensation to stock returns," Journal of Accounting and Economics, Elsevier, vol. 42(1-2), pages 167-192, October.
    19. Hertzel, Michael G. & Li, Zhi & Officer, Micah S. & Rodgers, Kimberly J., 2008. "Inter-firm linkages and the wealth effects of financial distress along the supply chain," Journal of Financial Economics, Elsevier, vol. 87(2), pages 374-387, February.
    20. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    21. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
    22. Banker, Rd & Datar, Sm, 1989. "Sensitivity, Precision, And Linear Aggregation Of Signals For Performance Evaluation," Journal of Accounting Research, Wiley Blackwell, vol. 27(1), pages 21-39.
    23. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    24. Srikant Datar & Susan Cohen Kulp & Richard A. Lambert, 2001. "Balancing Performance Measures," Journal of Accounting Research, Wiley Blackwell, vol. 39(1), pages 75-92, June.
    25. Bloomfield, Matthew & Gipper, Brandon & Kepler, John D. & Tsui, David, 2021. "Cost shielding in executive bonus plans," Journal of Accounting and Economics, Elsevier, vol. 72(2).
    26. Lambert, Ra & Larcker, Df, 1987. "An Analysis Of The Use Of Accounting And Market Measures Of Performance In Executive-Compensation Contracts," Journal of Accounting Research, Wiley Blackwell, vol. 25, pages 85-129.
    27. John R. Hauser & Duncan I. Simester & Birger Wernerfelt, 1994. "Customer Satisfaction Incentives," Marketing Science, INFORMS, vol. 13(4), pages 327-350.
    28. Juan Camilo Serpa & Harish Krishnan, 2018. "The Impact of Supply Chains on Firm-Level Productivity," Management Science, INFORMS, vol. 64(2), pages 511-532, February.
    29. Marshall Freimer & Dan Horsky, 2008. "Try It, You Will Like It—Does Consumer Learning Lead to Competitive Price Promotions?," Marketing Science, INFORMS, vol. 27(5), pages 796-810, 09-10.
    30. Rajiv D. Banker & Rong Huang & Ramachandran Natarajan, 2011. "Equity Incentives and Long†Term Value Created by SG&A Expenditure," Contemporary Accounting Research, John Wiley & Sons, vol. 28(3), pages 794-830, September.
    31. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
    32. Murphy, Kevin J., 2000. "Performance standards in incentive contracts," Journal of Accounting and Economics, Elsevier, vol. 30(3), pages 245-278, December.
    33. Radhakrishnan Gopalan & Todd Milbourn & Fenghua Song, 2010. "Strategic Flexibility and the Optimality of Pay for Sector Performance," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 2060-2098.
    34. Richard M. Cyert & Sok-Hyon Kang & Praveen Kumar, 2002. "Corporate Governance, Takeovers, and Top-Management Compensation: Theory and Evidence," Management Science, INFORMS, vol. 48(4), pages 453-469, April.
    35. Lambert, Richard A., 2001. "Contracting theory and accounting," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 3-87, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xiaoyu Yin & Xiujian Wei & Muhammad Irfan & Sonia Yasin, 2023. "Revitalizing Organizational Efficiency: Unpacking the Relationship between CEO Turnover, Research and Development, and Pay-Performance Sensitivities in the Financial Sector of Pakistan," Sustainability, MDPI, vol. 15(13), pages 1-15, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alex Edmans & Xavier Gabaix, 2016. "Executive Compensation: A Modern Primer," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1232-1287, December.
    2. Bushman, Robert M. & Smith, Abbie J., 2001. "Financial accounting information and corporate governance," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 237-333, December.
    3. Carter, Mary Ellen & Choi, Jen & Sedatole, Karen L., 2021. "The effect of supplier industry competition on pay-for-performance incentive intensity," Journal of Accounting and Economics, Elsevier, vol. 71(2).
    4. Dutta, Sunil & Reichelstein, Stefan J., 2002. "Leading Indicator Variables, Performance Measurement and Long-Term versus Short-Term Contracts," Research Papers 1756, Stanford University, Graduate School of Business.
    5. Engel, Ellen & Hayes, Rachel M. & Wang, Xue, 2003. "CEO turnover and properties of accounting information," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 197-226, December.
    6. Bouwens, J.F.M.G. & van Lent, L.A.G.M., 2003. "Effort and Selection Effects of Incentive Contracts," Discussion Paper 2003-130, Tilburg University, Center for Economic Research.
    7. Miguel Antón & Florian Ederer & Mireia Giné & Martin Schmalz, 2023. "Common Ownership, Competition, and Top Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 131(5), pages 1294-1355.
    8. Sunil Dutta & Stefan Reichelstein, 2003. "Leading Indicator Variables, Performance Measurement, and Long‐Term Versus Short‐Term Contracts," Journal of Accounting Research, Wiley Blackwell, vol. 41(5), pages 837-866, December.
    9. Hu, Jinshuai & Kim, Jeong-Bon, 2019. "The relative usefulness of cash flows versus accrual earnings for CEO turnover decisions across countries: The role of investor protection," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 34(C), pages 91-107.
    10. David Mayers & Clifford W. Smith, 2010. "Compensation and Board Structure: Evidence From the Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 297-327, June.
    11. Davila, Antonio & Peñalva, Fernando, 2004. "Corporate governance and the weighting of performance measures in CEO compensation," IESE Research Papers D/556, IESE Business School.
    12. Davila, Toni & Peñalva, Fernando, 2005. "Governance structure and the weighting of performance measures in CEO compensation," IESE Research Papers D/601, IESE Business School.
    13. Bouwens, J.F.M.G. & van Lent, L.A.G.M., 2003. "Effort and Selection Effects of Incentive Contracts," Other publications TiSEM 46a62de7-d051-4620-93bb-3, Tilburg University, School of Economics and Management.
    14. repec:eee:labchp:v:3:y:1999:i:pb:p:2485-2563 is not listed on IDEAS
    15. Michael Raith, 2008. "Specific knowledge and performance measurement," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1059-1079, December.
    16. Justin Law & Wayne Yu, 2018. "Corporate spinoffs and executive compensation," Frontiers of Business Research in China, Springer, vol. 12(1), pages 1-25, December.
    17. Neslihan Ozkan & Zvi Singer & Haifeng You, 2012. "Mandatory IFRS Adoption and the Contractual Usefulness of Accounting Information in Executive Compensation," Journal of Accounting Research, Wiley Blackwell, vol. 50(4), pages 1077-1107, September.
    18. Bushman, Robert M. & Indjejikian, Raffi J. & Smith, Abbie, 1996. "CEO compensation: The role of individual performance evaluation," Journal of Accounting and Economics, Elsevier, vol. 21(2), pages 161-193, April.
    19. Emeka T. Nwaeze & Simon S. M. Yang & Q. Jennifer Yin, 2006. "Accounting Information and CEO Compensation: The Role of Cash Flow from Operations in the Presence of Earnings," Contemporary Accounting Research, John Wiley & Sons, vol. 23(1), pages 227-265, March.
    20. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    21. Hooper, Louise, 2008. "Paying for performance: Uncertainty, asymmetric information and the payment model," Research in Transportation Economics, Elsevier, vol. 22(1), pages 157-163, January.

    More about this item

    Keywords

    Pay-performance sensitivity; Supply-chain relationship; Business confidence index; Executive compensation; Performance risk;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:64:y:2023:i:c:s0275531922002458. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.