CEO Stock‐Based Incentive Compensation and Firm Performance: A Quantile Regression Approach |
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| Authors: | Ming‐Yuan Leon Li Tung‐Hsiao Yang Shang‐En Yu |
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| Institution: | 1. Department of Finance, Waikato Management School, Hamilton, New Zealand;2. Department of Finance, National Chung Hsing University, Taichung 402, Taiwan;3. Department of Tourism, Ming Chuan University, Gui Shan District, Taoyuan County 333, Taiwan |
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| Abstract: | This study employs the quantile regression model to examine the non‐monotonic impact of CEO stock‐based compensation on firm performance, using the data for U.S. non‐financial firms from 1993 to 2005. The results indicate that while the impact of CEO stock‐based pay on firm performance is positive for firms in the higher earnings quantile levels, the impact is negative for firms in the lower levels. In addition, the “V‐shaped” relationship between CEO stock‐based pay and firm performance satisfactorily explains the longstanding disagreement among earlier studies with regard to whether CEO stock‐based pay can enhance firm performance. Furthermore, the quantile‐varying pattern of the impact of stock‐based compensation on firm performance is robust after controlling for the industrial and yearly effects. It is also robust to the use of the pay‐for‐performance sensitivity as an alternative explanatory variable or the market‐based measure of performance as the dependent variable, or the consideration of the suspected endogenous problem between firm performance and stock‐based compensation. |
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