TY - JOUR
T1 - Real options and earnings-based bonus compensation
AU - Huang, Hsing Hua
AU - Huang, Hongming
AU - Shih, Pai Ta
PY - 2012/8
Y1 - 2012/8
N2 - This study extends the works of Mauer and Sarkar (2005) and Andrikopoulos (2009) by incorporating a regime-dependent earnings-based bonus into managerial compensation. Examining the individual effects of ownership shares and earnings-based bonus compensation, we find that the former provides managers with incentives to issue debt, whereas the latter induces the opposite result, although consistent impacts are found for the two types of compensation on both agency costs and the optimal investment decisions of managers. When managerial compensation comprises both ownership shares and an earnings-based bonus, there are significant differences in the effects of these two types of performance compensation on managers' optimal investment and financing decisions, agency costs, optimal debt ratios and credit spreads, as a result of the specific interactions between the investment and financing decisions.
AB - This study extends the works of Mauer and Sarkar (2005) and Andrikopoulos (2009) by incorporating a regime-dependent earnings-based bonus into managerial compensation. Examining the individual effects of ownership shares and earnings-based bonus compensation, we find that the former provides managers with incentives to issue debt, whereas the latter induces the opposite result, although consistent impacts are found for the two types of compensation on both agency costs and the optimal investment decisions of managers. When managerial compensation comprises both ownership shares and an earnings-based bonus, there are significant differences in the effects of these two types of performance compensation on managers' optimal investment and financing decisions, agency costs, optimal debt ratios and credit spreads, as a result of the specific interactions between the investment and financing decisions.
KW - Capital structure
KW - Earnings-based bonus compensation
KW - Ownership shares compensation
KW - Real options
UR - http://www.scopus.com/inward/record.url?scp=84862161929&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2012.05.002
DO - 10.1016/j.jbankfin.2012.05.002
M3 - 期刊論文
AN - SCOPUS:84862161929
SN - 0378-4266
VL - 36
SP - 2389
EP - 2402
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
IS - 8
ER -