Top management team incentive dispersion and investment efficiency

Hongkang Xu () and Ashutosh Deshmukh ()
Additional contact information
Hongkang Xu: Accounting and Finance, Charlton College of Business, University of Massachusetts Dartmouth
Ashutosh Deshmukh: Penn State University

Review of Quantitative Finance and Accounting, 2025, vol. 64, issue 4, No 9, 1757-1782

Abstract: Abstract This study examines the impact of pay-performance sensitivity (PPS) dispersion within top management teams (TMT) on firm-level investment efficiency. Utilizing data from 1994 to 2022, we find a positive association between TMT PPS dispersion and investment efficiency, indicating that a broader incentive spread is associated with more prudent investment decisions. The research extends beyond traditional compensation level disparities, highlighting the influence of executive compensation structures on strategic resource allocation. Robustness checks, including various econometric approaches and the inclusion of corporate governance factors, confirm the persistence of this relationship. Additionally, channel analysis reveals that firms with higher R&D intensity experience amplified benefits from PPS dispersion. Our findings suggest that nuanced TMT incentive structures are crucial in aligning managerial actions with shareholder interests, thereby fostering optimal investment strategies and contributing to long-term firm growth.

Keywords: TMT; Incentive dispersion; Investment efficiency (search for similar items in EconPapers)
JEL-codes: G31 G32 J33 M12 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11156-024-01346-5 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:64:y:2025:i:4:d:10.1007_s11156-024-01346-5

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-024-01346-5

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().