Firm-supplier relations and managerial compensation

Tiantian Gu () and Anand Venkateswaran ()
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Tiantian Gu: Northeastern University
Anand Venkateswaran: Northeastern University

Review of Quantitative Finance and Accounting, 2018, vol. 51, issue 3, No 3, 649 pages

Abstract: Abstract In this paper we examine customer firms’ managerial compensation policies when they have important supplier relations. We show that firms with greater reliance on their suppliers tend to offer higher total- and equity-based pay but lower risking-taking incentives to its top executives. Our results are consistent with the argument that suppliers making firm-specific investments are concerned about the customer firm’s prospects. Therefore, firms with important supplier relations use the compensation policies of their top executives (more equity-based and less risk-taking) to signal their commitment to a stable and promising performance in the future. To address endogeneity issues arising out of time-varying omitted variables, we exploit a 2SLS procedure to supplement our baseline OLS findings. Our results are robust alternate measures of suppliers’ relationship-specific investments and econometric models. Overall, our results indicate that some of the heterogeneity in managerial compensation can be attributed to characteristics of the firm’s supply-chain relations.

Keywords: Executive compensation; Product markets; Signaling; Risk-taking; Incentives (search for similar items in EconPapers)
JEL-codes: J3 L1 L22 M52 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11156-017-0683-4

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