Executive Pay and Market Value Sensitivity

Feng-Li Lin ()

Panoeconomicus, 2016, vol. 63, issue 4, 411-424

Abstract: Executive pay relative to that of average workers has risen dramatically worldwide. Such a high level of executive pay raises the question of whether a steep rise in executive pay affects firm value. This study examined the relationship between executive pay and firm value. A panel smooth transition regression model is adopted to determine an optimal level of executive pay that maximizes firm value for a sample of 512 Taiwanese-listed firms over the period 2006-2011. The finding is that when the ratio of executive pay to net income after tax exceeds 2.71%, the firm value increases. The results suggest a correlation between large executive ownership (corresponding to high executive pay) and both increased operational efficiencies and firm value. These findings may be useful when contemplating executive compensation policy. Key words: Executive ownership, Firm value, Executive pay, Optimal level.JEL: G30, G32, G35, G38.

Keywords: Executive ownership; Firm value; Executive pay; Optimal level (search for similar items in EconPapers)
Date: 2016
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