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Agency and Corporate Investment: The Role of Executive Compensation and Corporate Governance

Author

Listed:
  • Sok-Hyon Kang

    (George Washington University)

  • Praveen Kumar

    (University of Houston)

  • Hyunkoo Lee

    (Hong Kong University of Science and Technology)

Abstract

The agency theory of the firm implies that executive incentive compensation and corporate investment policies are endogenously determined. We estimate jointly the relationship between long-term corporate investment and CEO incentive compensation structure, while considering the strength of corporate governance mechanisms. The analysis indicates that long-term business investment is positively related to the weight placed on equity-based incentive compensation, after controlling for internal financing constraints and the quality of the investment opportunity set. We also confirm that CEO compensation structure is influenced by factors that represent the strength of the firm's internal governance mechanisms.

Suggested Citation

  • Sok-Hyon Kang & Praveen Kumar & Hyunkoo Lee, 2006. "Agency and Corporate Investment: The Role of Executive Compensation and Corporate Governance," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1127-1148, May.
  • Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:3:p:1127-1148
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    Citations

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    Cited by:

    1. Chen, Yenn-Ru & Ma, Yulong, 2011. "Revisiting the risk-taking effect of executive stock options on firm performance," Journal of Business Research, Elsevier, vol. 64(6), pages 640-648, June.
    2. Humphery-Jenner, M., 2011. "Internal and External Discipline Following Securities Class Actions," Discussion Paper 2011-044, Tilburg University, Center for Economic Research.
    3. Ei Yet Chu & Saw Imm Song, 2012. "Executive Compensation, Earnings Management and Over Investment in Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 8(Supp. 1), pages 13-37.
    4. Mantecon, Tomas & Poon, Percy, 2009. "An analysis of the liquidity benefits provided by secondary markets," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 335-346, February.
    5. Humphery-Jenner, Mark L., 2012. "Internal and external discipline following securities class actions," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 151-179.
    6. repec:eee:finana:v:52:y:2017:i:c:p:190-202 is not listed on IDEAS
    7. I-Ju Chen, 2016. "Corporate Governance and the Efficiency of Internal Capital Markets," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-50, June.

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