Risk, Employee Incentive Intensity and Firm Performance: Empirical Evidence

36 Pages Posted: 5 Aug 2008

See all articles by Joanna L.Y. Ho

Joanna L.Y. Ho

University of California, Irvine - Accounting Area

Ling-Chu Lee

National Pingtung Institute of Commerce

Anne Wu

National Chengchi University (Taipei)

Date Written: August 2, 2008

Abstract

The agent theory is of central importance to compensation contract, which argues that incentive intensity should be negatively associated with risk. Yet, previous studies have reported mixed findings on this relationship. This study empirically examines this relationship by utilizing data obtained from a major car dealership in Taiwan in which levels of delegation and monitoring costs are held constant. Our overall results support the prediction of agency theory, namely, that auto dealership branches reduce incentive intensity for salespersons when facing higher risks. Importantly, we find that branches giving salespersons lower incentive intensity in more risky environments perform better than those that do not employ compensation practices based on the agency theory.

Keywords: Risk, Compensation, Incentive Intensity, Performance

Suggested Citation

Ho, Joanna L.Y. and Lee, Ling-Chu and Wu, Anne, Risk, Employee Incentive Intensity and Firm Performance: Empirical Evidence (August 2, 2008). Available at SSRN: https://ssrn.com/abstract=1196903 or http://dx.doi.org/10.2139/ssrn.1196903

Joanna L.Y. Ho

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States
949-824-4041 (Phone)
949-725-2833 (Fax)

Ling-Chu Lee (Contact Author)

National Pingtung Institute of Commerce ( email )

51 Min-Sheng E. Road
Pingtung, Taiwan 900
China

Anne Wu

National Chengchi University (Taipei) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei 11623
Taiwan

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