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Firm-supplier relations and managerial compensation

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  • Tiantian Gu

    (Northeastern University)

  • Anand Venkateswaran

    (Northeastern University
    Indian Institute of Management - Bangalore)

Abstract

In this paper we examine customer firms’ managerial compensation policies when they have important supplier relations. We show that firms with greater reliance on their suppliers tend to offer higher total- and equity-based pay but lower risking-taking incentives to its top executives. Our results are consistent with the argument that suppliers making firm-specific investments are concerned about the customer firm’s prospects. Therefore, firms with important supplier relations use the compensation policies of their top executives (more equity-based and less risk-taking) to signal their commitment to a stable and promising performance in the future. To address endogeneity issues arising out of time-varying omitted variables, we exploit a 2SLS procedure to supplement our baseline OLS findings. Our results are robust alternate measures of suppliers’ relationship-specific investments and econometric models. Overall, our results indicate that some of the heterogeneity in managerial compensation can be attributed to characteristics of the firm’s supply-chain relations.

Suggested Citation

  • Tiantian Gu & Anand Venkateswaran, 2018. "Firm-supplier relations and managerial compensation," Review of Quantitative Finance and Accounting, Springer, vol. 51(3), pages 621-649, October.
    • Handle: RePEc:kap:rqfnac:v:51:y:2018:i:3:d:10.1007_s11156-017-0683-4
    DOI: 10.1007/s11156-017-0683-4
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    3. Wulung Li & Ramachandran Natarajan & Yan Zhao & Kenneth Zheng, 2021. "The effect of management control mechanisms through risk-taking incentives on asymmetric cost behavior," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 219-243, January.

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    More about this item

    Keywords

    Executive compensation; Product markets; Signaling; Risk-taking; Incentives;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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