Investor sentiment, executive compensation, and corporate investment

Bruce D. Grundy and Hui Li

Journal of Banking & Finance, 2010, vol. 34, issue 10, 2439-2449

Abstract: We develop a model that predicts corporate investment level increases with investors' optimism and that the relationship between investment level and executive compensation depends on investor sentiment and other parameters. The empirical test shows that optimism is significantly and positively related to the level of investment and that executive compensation is insignificantly related to the level of investment. The managerial share ownership is positively related to the level of investment, conditional on the degree of optimism. The empirical results suggest that executives make investment decisions that not only cater to investor sentiment but also reflect their own interest in the company.

Keywords: Investor; sentiment; Corporate; investment; Executive; compensation; Behavioral; finance (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:34:y:2010:i:10:p:2439-2449

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