TY - JOUR
T1 - CEO compensation and firm performance
T2 - Evidence from financially constrained firms
AU - Kweh, Qian Long
AU - Tebourbi, Imen
AU - Lo, Huai Chun
AU - Huang, Cheng Tsu
N1 - Publisher Copyright:
© 2022 Elsevier B.V.
PY - 2022/10
Y1 - 2022/10
N2 - We examine how financial constraints affect the relationship between firm performance and the CEO compensation of U.S. listed corporations during the period 1996–2018. Our results indicate that financial constraints negatively moderate the positive relationships between firm performance and CEO compensation. That is, financially constrained firms that perform well financially will increase their CEO compensation at a smaller rate than their counterparts because financially constrained firms tend to hoard cash to save cost and safeguard for future investment, liquidity and leverage policies. However, the negative impact of financial constraints on the positive pay-performance sensitivity is more pronounced in the bonus sample. That is, financially constrained firms control bonus increments to control costs even when their firm performance improves. Overall, our results, which are robust to a battery of tests, explain why prior studies show minimal pay-performance sensitivity and the need to account for the financial constraints of a company in designing CEO compensation.
AB - We examine how financial constraints affect the relationship between firm performance and the CEO compensation of U.S. listed corporations during the period 1996–2018. Our results indicate that financial constraints negatively moderate the positive relationships between firm performance and CEO compensation. That is, financially constrained firms that perform well financially will increase their CEO compensation at a smaller rate than their counterparts because financially constrained firms tend to hoard cash to save cost and safeguard for future investment, liquidity and leverage policies. However, the negative impact of financial constraints on the positive pay-performance sensitivity is more pronounced in the bonus sample. That is, financially constrained firms control bonus increments to control costs even when their firm performance improves. Overall, our results, which are robust to a battery of tests, explain why prior studies show minimal pay-performance sensitivity and the need to account for the financial constraints of a company in designing CEO compensation.
KW - CEO compensation
KW - Financial constraints
KW - Firm performance
KW - Pay-performance sensitivity
UR - http://www.scopus.com/inward/record.url?scp=85129712781&partnerID=8YFLogxK
U2 - 10.1016/j.ribaf.2022.101671
DO - 10.1016/j.ribaf.2022.101671
M3 - 期刊論文
AN - SCOPUS:85129712781
SN - 0275-5319
VL - 61
JO - Research in International Business and Finance
JF - Research in International Business and Finance
M1 - 101671
ER -