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Executive compensation and firm performance: adjustment dynamics, non-linearity and asymmetry

Author

Listed:
  • Giorgio Canarella

    (Department of Economics and Statistics, California State University, Los Angeles, USA)

  • Mahmoud M. Nourayi

    (Department of Accounting, Loyola Marymount University, LA, USA)

Abstract

The relationship between executive compensation and firm performance is a field of intense theoretical and empirical research. The purpose of this study is to gain additional insights into the nature of this relationship by examining empirically the relatively unexplored areas of its dynamics of adjustment, as well as its non-linearity. The findings of this study show strong evidence in support of the view that (a) executive compensation is characterized by a dynamic process of adjustment, and (b) the relationship between executive compensation and firm performance is non-linear and asymmetric. Additionally, the structure of asymmetry is found to be dependent on the measure of performance. Convexity characterizes the asymmetry of the relationship between executive compensation and market returns, while concavity distinguishes the asymmetry of the relationship between executive compensation and accounting returns. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • Giorgio Canarella & Mahmoud M. Nourayi, 2008. "Executive compensation and firm performance: adjustment dynamics, non-linearity and asymmetry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(4), pages 293-315.
  • Handle: RePEc:wly:mgtdec:v:29:y:2008:i:4:p:293-315
    DOI: 10.1002/mde.1368
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    File URL: http://hdl.handle.net/10.1002/mde.1368
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    References listed on IDEAS

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    Cited by:

    1. Wang, Cheng, 1997. "Incentives, CEO Compensation, and Shareholder Wealth in a Dynamic Agency Model," Journal of Economic Theory, Elsevier, vol. 76(1), pages 72-105, September.
    2. Timothy King & Jonathan Williams, 2013. "Bank Efficiency and Executive Compensation," Working Papers 13009, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    3. Aleksandra Gregoric & Arjana Brezigar Masten & Katarina Zajc, 2011. "From Social to Private Ownership: Multiple Blockholders in Slovenian Unlisted Firms," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(5), pages 27-51, September.
    4. Elena Merino & Montserrat Manzaneque & Alba Maria Priego, 2013. "“Board independence” and compensation structure of directors," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 2(2), pages 125-152.
    5. Aleksandra Gregoric & Arjana Brezigar Masten & Katarina Zajc, 2011. "From Social to Private Ownership: Multiple Blockholders in Slovenian Unlisted Firms," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(5), pages 27-51, September.
    6. Alok Bhargava, 2013. "Executive compensation, share repurchases and investment expenditures: econometric evidence from US firms," Review of Quantitative Finance and Accounting, Springer, vol. 40(3), pages 403-422, April.
    7. Cao, Jerry & Pan, Xiaofei & Tian, Gary, 2011. "Disproportional ownership structure and pay-performance relationship: Evidence from China's listed firms," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 541-554, June.

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