Non-uniform effects of CEO equity-based compensation on firm performance – An application of a panel threshold regression model

Chii-Shyan Kuo, Ming-Yuan Leon Li and Shang-En Yu

The British Accounting Review, 2013, vol. 45, issue 3, 203-214

Abstract: We use panel-data threshold models to examine the non-uniform relation between Chief Executive Officer (CEO) equity-based compensation and earnings-based performance. Prior studies examining this very issue have arbitrarily adopted various exogenous criteria to partition the sample, and thus the inferences could be misleading. To address this issue, we employ the threshold regression models that allow the data itself to endogenously generate several regimes identified by the thresholds. Our empirical results show that not only is the positive impact of CEO equity incentives on firm performance more pronounced for companies with lower and moderate levels of CEO stock-based incentive pay, but also for less-profitable firms. The results are consistent with the position that excessive equity-based awards are unable to benefit firm performance, and that share-based compensation is more effective for start-up firms with low profit.

Keywords: Threshold model; CEO equity-based compensation; Pay–performance relation; From the sources identified in this paper (search for similar items in EconPapers)
JEL-codes: C50 G30 J33 M41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:45:y:2013:i:3:p:203-214

DOI: 10.1016/j.bar.2013.06.008

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