dc.contributor.author | Qu, Xin | |
dc.contributor.author | Percy, Majella | |
dc.contributor.author | Hu, Fang | |
dc.contributor.author | Stewart, Jenny | |
dc.contributor.editor | Paul de Lange | |
dc.date.accessioned | 2017-08-29T05:17:48Z | |
dc.date.available | 2017-08-29T05:17:48Z | |
dc.date.issued | 2015 | |
dc.identifier.uri | http://hdl.handle.net/10072/165195 | |
dc.description.abstract | We investigate the association between managerial investment behaviour and CEO incentives
derived from compensation contracts. Based on a sample of the largest two hundred
Australian firms over the period 2010 to 2014, we find that investment inefficiency, proxied
by investment-cash flow sensitivity, is reduced through the strategic design of CEO equity
compensation. The positive sensitivity of investment to cash flow decreases as the use of
equity grants increases, indicating greater interest alignment between management and
shareholders. The decreased investment-cash flow sensitivity also occurs when using a longer
vesting duration and a graded vesting pattern (benefits gradually vest throughout the vesting
period), suggesting that enhanced horizon incentives align managers’ interest with long-term
firm value. We also find that the investment-cash flow sensitivity is reduced when attaching
performance hurdles to equity grants, especially the long-term hurdles, implying substantial
financial incentives provide incremental interest alignment and correspondingly reduces
investment-related agency problems. We note that CEO power has a moderating effect on our
regression results. When CEOs have relatively higher power, the utility of equity
compensation becomes inadequate to reduce investment-cash flow sensitivity. Overall, the
results are consistent with the agency cost explanation that firms can strategically design
equity-based compensation to reduce investment-related agency problems. | |
dc.description.peerreviewed | Yes | |
dc.language | English | |
dc.publisher | AFAANZ | |
dc.publisher.place | Australia | |
dc.publisher.uri | http://www.afaanz.org/conferences | |
dc.relation.ispartofconferencename | 2015 AFAANZ | |
dc.relation.ispartofconferencetitle | Accounting & Finance Association of Australia and New Zealand Conference 2015 | |
dc.relation.ispartofdatefrom | 2015-07-05 | |
dc.relation.ispartofdateto | 2015-07-07 | |
dc.relation.ispartoflocation | Hobart, Australia | |
dc.subject.fieldofresearch | Financial Accounting | |
dc.subject.fieldofresearchcode | 150103 | |
dc.title | Can the Design of Equity-based Compensation Limit Investment-related Agency Problems? | |
dc.type | Conference output | |
dc.type.description | E2 - Conferences (Non Refereed) | |
dc.type.code | E - Conference Publications | |
dc.description.version | Version of Record (VoR) | |
gro.faculty | Griffith Business School, Department of Accounting, Finance and Economics | |
gro.rights.copyright | © The Author(s) 2015. The attached file is reproduced here in accordance with the copyright policy of the publisher. For information about this conference please refer to the conference’s website or contact the authors. | |
gro.hasfulltext | Full Text | |
gro.griffith.author | Percy, Majella | |
gro.griffith.author | Stewart, Jenny D. | |
gro.griffith.author | Qu, Tracy | |
gro.griffith.author | Hu, Fang | |