{"title":"Top management team incentive dispersion and investment efficiency","authors":"Hongkang Xu, Ashutosh Deshmukh","doi":"10.1007/s11156-024-01346-5","DOIUrl":null,"url":null,"abstract":"<p>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.</p>","PeriodicalId":47688,"journal":{"name":"Review of Quantitative Finance and Accounting","volume":null,"pages":null},"PeriodicalIF":1.9000,"publicationDate":"2024-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Quantitative Finance and Accounting","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1007/s11156-024-01346-5","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
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.
期刊介绍：
Review of Quantitative Finance and Accounting deals with research involving the interaction of finance with accounting, economics, and quantitative methods, focused on finance and accounting. The papers published present useful theoretical and methodological results with the support of interesting empirical applications. Purely theoretical and methodological research with the potential for important applications is also published. Besides the traditional high-quality theoretical and empirical research in finance, the journal also publishes papers dealing with interdisciplinary topics.
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