The Nonlinear Effect of Executive Compensation on Financial Performance

Q2 Business, Management and Accounting

Business Perspectives and Research Pub Date : 2023-04-28 DOI:10.1177/22785337221148283

Ritu Pareek, T. N. Sahu, K. Pandey

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引用次数: 1

Abstract

The agency theory propagates the use of compensation as a motivational measure to get the interest of the firm’s owners and the managers aligned. However, after a series of scandals, there has been a widespread focus on the payments made to the executives and their relationship with the organization’s financial performance. Although the relationship between compensation and performance has been observed extensively, the change in the relationship at various levels of compensation and the nonlinear aspect in the relationship still remain unanswered. Under this backdrop, the study makes an in-depth analysis of the relationship between executive compensation and firm performance in the context of 182 nonfinancial NSE-listed companies of India for the period 2014–2020. The study besides applying the static panel data analysis also advances to generalized method of moments based dynamic panel model to overcome the issues of endogeneity and declares that the relationship existing between executive compensation and firm’s Tobin’s Q is seen to be an inverted U-shaped curve. As per the robust estimator, an increase in the level of executive compensation is found to affect financial performance positively until it transcends a threshold level of 2.6% of the firm’s net profit.

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高管薪酬对财务绩效的非线性影响

代理理论提倡将薪酬作为一种激励措施，以使公司所有者和管理者的利益保持一致。然而，在一系列丑闻之后，人们普遍关注向高管支付的款项及其与该组织财务业绩的关系。虽然薪酬与绩效之间的关系已被广泛观察，但在不同薪酬水平上，这种关系的变化以及这种关系的非线性方面仍未得到解答。在此背景下，本研究以2014-2020年印度nse上市的182家非金融类公司为研究对象，深入分析了高管薪酬与公司绩效之间的关系。本文在应用静态面板数据分析的基础上，提出了基于矩量的动态面板模型的广义方法，克服了内质性问题，并认为高管薪酬与企业托宾Q之间存在倒u型曲线关系。根据稳健估计，发现高管薪酬水平的增加对财务业绩有积极影响，直到它超过公司净利润的2.6%的阈值水平。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Business Perspectives and Research Business, Management and Accounting-Business and International Management

CiteScore

5.00

自引率

0.00%

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期刊介绍： Business Perspectives and Research (BPR) aims to publish conceptual, empirical and applied research. The empirical research published in BPR focuses on testing, extending and building management theory. The goal is to expand and enhance the understanding of business and management through empirical investigation and theoretical analysis. BPR is also a platform for insightful and theoretically strong conceptual and review papers which would contribute to the body of knowledge. BPR seeks to advance the understanding of for-profit and not-for-profit organizations through empirical and conceptual work. It also publishes critical review of newly released books under Book Review section. The aim is to popularize and encourage discussion on ideas expressed in newly released books connected to management and allied disciplines. BPR also periodically publishes management cases grounded in theory, and communications in the form of research notes or comments from researchers and practitioners on published papers for critiquing and/or extending thinking on the area under consideration. The overarching aim of Business Perspectives and Research is to encourage original/innovative thinking through a scientific approach.