IDEAS home Printed from https://ideas.repec.org/a/sae/ausman/v46y2021i4p593-628.html

Does firm life cycle have impacts on managerial promotion tournament incentives?

Author

Listed:
  • Hasibul Chowdhury

    (UQ Business School, The University of Queensland, Brisbane, QLD, Australia)

  • Syed Shams

    (School of Commerce, University of Southern Queensland, Springfield, QLD, Australia)

Abstract

We examine whether and how firm-level promotion tournament incentives for executives, measured by the pay gap between a chief executive officer (CEO) and non-CEO executives, vary in different corporate life-cycle stages. Results show that managerial tournament incentives are higher in growth and mature life-cycle stages than in introduction and decline stages. In additional analyses, we find that firms design compensation contracts for growth and mature life-cycle stages with a target to increase tournament incentives for non-CEO executives that induce managerial risk-taking behaviour, leading to high productivity and performance. JEL Classification: G30, M12

Suggested Citation

  • Hasibul Chowdhury & Syed Shams, 2021. "Does firm life cycle have impacts on managerial promotion tournament incentives?," Australian Journal of Management, Australian School of Business, vol. 46(4), pages 593-628, November.
    • Handle: RePEc:sae:ausman:v:46:y:2021:i:4:p:593-628
    DOI: 10.1177/0312896220974417
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0312896220974417
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0312896220974417?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
    ---><---

    References listed on IDEAS

    as
    1. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79, March.
    2. Patrick Bolton & Hamid Mehran & Joel Shapiro, 2015. "Executive Compensation and Risk Taking," Review of Finance, European Finance Association, vol. 19(6), pages 2139-2181.
    3. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
    4. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
    5. Haß, Lars Helge & Müller, Maximilian A. & Vergauwe, Skrålan, 2015. "Tournament incentives and corporate fraud," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 251-267.
    6. Bryan, David B. & Mason, Terry W., 2017. "Executive tournament incentives and audit fees," Advances in accounting, Elsevier, vol. 37(C), pages 30-45.
    7. Levi, Maurice & Li, Kai & Zhang, Feng, 2014. "Director gender and mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 185-200.
    8. Larcker, David F. & Rusticus, Tjomme O., 2010. "On the use of instrumental variables in accounting research," Journal of Accounting and Economics, Elsevier, vol. 49(3), pages 186-205, April.
    9. Danny Miller & Peter H. Friesen, 1984. "A Longitudinal Study of the Corporate Life Cycle," Management Science, INFORMS, vol. 30(10), pages 1161-1183, October.
    10. Kristian Rydqvist & Kenneth Högholm, 1995. "Going public in the 1980s: Evidence from Sweden," European Financial Management, European Financial Management Association, vol. 1(3), pages 287-315, November.
    11. Hasan, Mostafa Monzur & Habib, Ahsan, 2017. "Firm life cycle and idiosyncratic volatility," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 164-175.
    12. Zhang, Honghui & Huang, Hedy Jiaying & Habib, Ahsan, 2018. "The Effect of Tournament Incentives on Financial Restatements: Evidence From China," The International Journal of Accounting, Elsevier, vol. 53(2), pages 118-135.
    13. Chahine, Salim & Goergen, Marc, 2013. "The effects of management-board ties on IPO performance," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 153-179.
    14. Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
    15. Hasan, Mostafa Monzur & Habib, Ahsan, 2017. "Corporate life cycle, organizational financial resources and corporate social responsibility," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(1), pages 20-36.
    16. Leung, Siu Fai & Yu, Shihti, 1996. "On the choice between sample selection and two-part models," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 197-229.
    17. Jonathan S. Leonard, 1990. "Executive Pay and Firm Performance," ILR Review, Cornell University, ILR School, vol. 43(3), pages 13, April.
    18. Jayant R. Kale & Ebru Reis & Anand Venkateswaran, 2009. "Rank‐Order Tournaments and Incentive Alignment: The Effect on Firm Performance," Journal of Finance, American Finance Association, vol. 64(3), pages 1479-1512, June.
    19. DeAngelo, Harry & DeAngelo, Linda & Stulz, René M., 2010. "Seasoned equity offerings, market timing, and the corporate lifecycle," Journal of Financial Economics, Elsevier, vol. 95(3), pages 275-295, March.
    20. Xu, Jin & Yang, Jun, 2016. "Golden hellos: Signing bonuses for new top executives," Journal of Financial Economics, Elsevier, vol. 122(1), pages 175-195.
    21. Armstrong, Christopher S. & Vashishtha, Rahul, 2012. "Executive stock options, differential risk-taking incentives, and firm value," Journal of Financial Economics, Elsevier, vol. 104(1), pages 70-88.
    22. Banyi, Monica L. & Kahle, Kathleen M., 2014. "Declining propensity to pay? A re-examination of the lifecycle theory," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 345-366.
    23. Phyllis A. Siegel & Donald C. Hambrick, 2005. "Pay Disparities Within Top Management Groups: Evidence of Harmful Effects on Performance of High-Technology Firms," Organization Science, INFORMS, vol. 16(3), pages 259-274, June.
    24. Viral V. Acharya & Stewart C. Myers & Raghuram G. Rajan, 2011. "The Internal Governance of Firms," Journal of Finance, American Finance Association, vol. 66(3), pages 689-720, June.
    25. S. Trevis Certo & John R. Busenbark & Hyun‐soo Woo & Matthew Semadeni, 2016. "Sample selection bias and Heckman models in strategic management research," Strategic Management Journal, Wiley Blackwell, vol. 37(13), pages 2639-2657, December.
    26. Wei Shi & Brian L. Connelly & Wm. Gerard Sanders, 2016. "Buying bad behavior: Tournament incentives and securities class action lawsuits," Strategic Management Journal, Wiley Blackwell, vol. 37(7), pages 1354-1378, July.
    27. Gustavo Grullon & Roni Michaely & Bhaskaran Swaminathan, 2002. "Are Dividend Changes a Sign of Firm Maturity?," The Journal of Business, University of Chicago Press, vol. 75(3), pages 387-424, July.
    28. Canice Prendergast, 1993. "The Role of Promotion in Inducing Specific Human Capital Acquisition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(2), pages 523-534.
    29. Mobbs, Shawn & Raheja, Charu G., 2012. "Internal managerial promotions: Insider incentives and CEO succession," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1337-1353.
    30. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    31. Mueller, Dennis C, 1972. "A Life Cycle Theory of the Firm," Journal of Industrial Economics, Wiley Blackwell, vol. 20(3), pages 199-219, July.
    32. Faff, Robert & Kwok, Wing Chun & Podolski, Edward J. & Wong, George, 2016. "Do corporate policies follow a life-cycle?," Journal of Banking & Finance, Elsevier, vol. 69(C), pages 95-107.
    33. Koberg, Christine S. & Uhlenbruck, Nikolaus & Sarason, Yolanda, 1996. "Facilitators of organizational innovation: The role of life-cycle stage," Journal of Business Venturing, Elsevier, vol. 11(2), pages 133-149, March.
    34. Jeffrey J. Coulton & Caitlin Ruddock, 2011. "Corporate payout policy in Australia and a test of the life‐cycle theory," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 51(2), pages 381-407, June.
    35. James Heckman, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    36. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2006. "Managerial incentives and risk-taking," Journal of Financial Economics, Elsevier, vol. 79(2), pages 431-468, February.
    37. Moores, Ken & Yuen, Susana, 2001. "Management accounting systems and organizational configuration: a life-cycle perspective," Accounting, Organizations and Society, Elsevier, vol. 26(4-5), pages 351-389.
    38. DeAngelo, Harry & DeAngelo, Linda & Stulz, Rene M., 2006. "Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory," Journal of Financial Economics, Elsevier, vol. 81(2), pages 227-254, August.
    39. Hasan, Mostafa Monzur & Hossain, Mahmud & Cheung, Adrian (Wai-Kong) & Habib, Ahsan, 2015. "Corporate life cycle and cost of equity capital," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(1), pages 46-60.
    40. Bugeja, Martin & Matolcsy, Zoltan & Spiropoulos, Helen, 2017. "The CEO pay slice: Managerial power or efficient contracting? Some indirect evidence," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(1), pages 69-87.
    41. R. A. Thietart & R. Vivas, 1984. "An Empirical Investigation of Success Strategies for Businesses Along the Product Life Cycle," Management Science, INFORMS, vol. 30(12), pages 1405-1423, December.
    42. Carl Hsin-han Shen & Hao Zhang, 2018. "Tournament Incentives and Firm Innovation," Review of Finance, European Finance Association, vol. 22(4), pages 1515-1548.
    43. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563, Elsevier.
    44. Koh, SzeKee & Durand, Robert B. & Dai, Lele & Chang, Millicent, 2015. "Financial distress: Lifecycle and corporate restructuring," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 19-33.
    45. Ahsan Habib & Mostafa Monzur Hasan, 2017. "Firm life cycle, corporate risk-taking and investor sentiment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(2), pages 465-497, June.
    46. Andrea L. Eisfeldt & Dimitris Papanikolaou, 2013. "Organization Capital and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 68(4), pages 1365-1406, August.
    47. Richard A. Bettis & Constance E. Helfat & J. Myles Shaver & Sungyong Chang & Bruce Kogut & Jae-Suk Yang, 2016. "Global diversification discount and its discontents: A bit of self-selection makes a world of difference," Strategic Management Journal, Wiley Blackwell, vol. 37(11), pages 2254-2274, November.
    48. Phan, Hieu V. & Simpson, Thuy & Nguyen, Hang T., 2017. "Tournament-Based Incentives, Corporate Cash Holdings, and the Value of Cash," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(4), pages 1519-1550, August.
    49. Shawn Bushway & Brian D. Johnson & Lee Ann Slocum, 2007. "Is the Magic Still There? The Use of the Heckman Two-Step Correction for Selection Bias in Criminology," Journal of Quantitative Criminology, Springer, vol. 23(2), pages 151-178, June.
    50. Hasan, Mostafa Monzur & Cheung, Adrian (Wai-Kong), 2018. "Organization capital and firm life cycle," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 556-578.
    51. Anthony, Joseph H. & Ramesh, K., 1992. "Association between accounting performance measures and stock prices : A test of the life cycle hypothesis," Journal of Accounting and Economics, Elsevier, vol. 15(2-3), pages 203-227, August.
    52. repec:eee:labchp:v:3:y:1999:i:pb:p:2485-2563 is not listed on IDEAS
    53. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-653, September.
    54. Burns, Natasha & Minnick, Kristina & Starks, Laura, 2017. "CEO Tournaments: A Cross-Country Analysis of Causes, Cultural Influences, and Consequences," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(2), pages 519-551, April.
    55. Kini, Omesh & Williams, Ryan, 2012. "Tournament incentives, firm risk, and corporate policies," Journal of Financial Economics, Elsevier, vol. 103(2), pages 350-376.
    Full references (including those not matched with items on IDEAS)

    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. Habib, Ahsan & Hasan, Mostafa Monzur, 2019. "Corporate life cycle research in accounting, finance and corporate governance: A survey, and directions for future research," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 188-201.
    2. Sun, Sophia Li & Habib, Ahsan, 2020. "Determinants and consequences of tournament incentives: A survey of the literature in accounting and finance," Research in International Business and Finance, Elsevier, vol. 54(C).
    3. Hasan, Mostafa Monzur & Cheung, Adrian (Wai-Kong), 2018. "Organization capital and firm life cycle," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 556-578.
    4. Muhammad Atif & Benjamin Liu & Sivathaasan Nadarajah, 2022. "The effect of corporate environmental, social and governance disclosure on cash holdings: Life‐cycle perspective," Business Strategy and the Environment, Wiley Blackwell, vol. 31(5), pages 2193-2212, July.
    5. Toksoz, Tuba & Demirkan, Sebahattin & Demirkan, Irem & Mishra, Birendra K., 2025. "CEO overconfidence across the firm lifecycle: effects on accounting outcomes and stock market reactions," Journal of Contemporary Accounting and Economics, Elsevier, vol. 21(3).
    6. Mina Glambosky & Surendranath Jory & Tapas Mishra & Thanh Ngo, 2025. "Institutional ownership and firm performance by life-cycle stage," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 39(3), pages 365-413, September.
    7. Ahsan Akbar & Minhas Akbar & Wenjin Tang & Muhammad Azeem Qureshi, 2019. "Is Bankruptcy Risk Tied to Corporate Life-Cycle? Evidence from Pakistan," Sustainability, MDPI, vol. 11(3), pages 1-22, January.
    8. Ahsan Habib & Mostafa Monzur Hasan, 2017. "Firm life cycle, corporate risk-taking and investor sentiment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(2), pages 465-497, June.
    9. Hasan, Mostafa Monzur & Hossain, Mahmud & Cheung, Adrian (Wai-Kong) & Habib, Ahsan, 2015. "Corporate life cycle and cost of equity capital," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(1), pages 46-60.
    10. Amin, Abu & Bowler, Blake & Hasan, Mostafa Monzur & Lobo, Gerald J. & Tresl, Jiri, 2023. "Firm life cycle and cost of debt," Journal of Banking & Finance, Elsevier, vol. 154(C).
    11. Sun, Sophia Li & Habib, Ahsan & Huang, Hedy Jiaying, 2019. "Tournament incentives and stock price crash risk: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 54(C), pages 93-117.
    12. Shahzad, Farrukh & Ahmad, Munir & Fareed, Zeeshan & Wang, Zhenkun, 2022. "Innovation decisions through firm life cycle: A new evidence from emerging markets," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 51-67.
    13. Chowdhury, Hasibul & Rahman, Shofiqur, 2023. "Do tournament incentives affect corporate dividend policy?," Journal of Banking & Finance, Elsevier, vol. 152(C).
    14. ElBannan, Mona A., 2021. "On the prediction of financial distress in emerging markets: What matters more? Empirical evidence from Arab spring countries," Emerging Markets Review, Elsevier, vol. 47(C).
    15. Ahsan Habib & Md. Borhan Uddin Bhuiyan & Mostafa Monzur Hasan, 2018. "Firm life cycle and advisory directors," Australian Journal of Management, Australian School of Business, vol. 43(4), pages 575-592, November.
    16. Kathleen Bakarich & Jiaxin Liu & Joseph Weintrop, 2021. "At what life-cycle stage does the auditors’ going concern report add value?," Review of Quantitative Finance and Accounting, Springer, vol. 56(3), pages 1129-1157, April.
    17. Xiaofei Zhang & Longbing Xu, 2021. "Firm life cycle and debt maturity structure: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 937-976, March.
    18. Bilal Ahmed & Minhas Akbar & Tanazza Sabahat & Saqib Ali & Ammar Hussain & Ahsan Akbar & Xie Hongming, 2020. "Does Firm Life Cycle Impact Corporate Investment Efficiency?," Sustainability, MDPI, vol. 13(1), pages 1-13, December.
    19. Desrousseaux, Luc, 2023. "Are activist hedge funds good business advisors?," Economic Modelling, Elsevier, vol. 125(C).
    20. Mostafa Monzur Hasan & Adrian (Wai‐Kong) Cheung & Lidia Tunas & Hung Wan Kot, 2021. "Firm life cycle and trade credit," The Financial Review, Eastern Finance Association, vol. 56(4), pages 743-771, November.

    More about this item

    Keywords

    ;
    ;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • 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:sae:ausman:v:46:y:2021:i:4:p:593-628. 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: SAGE Publications (email available below). General contact details of provider: http://www.agsm.edu.au .

    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.