Do Stock-Based Incentives Promote Long-Term Oriented Firm Behavior? Evidence from the Recent Credit Crises (Fördern Aktienkursbasierte Vergütungsinstrumente Langfristig Orientierte Unternehmensentscheidungen? Lehren aus der Kreditkrise)

Zeitschrift für Betriebswirtschaft, Forthcoming

36 Pages Posted: 21 Mar 2012 Last revised: 25 May 2012

See all articles by Marc Steffen Rapp

Marc Steffen Rapp

University of Marburg - School of Business & Economics; University of Marburg - Marburg Centre for Institutional Economics (MACIE)

Philipp Schaller

Technische Universität München - Center for Entrepreneurial and Financial Studies

Michael Wolff

University of Göttingen

Date Written: March 20, 2012

Abstract

The question whether stock-based management incentives encourage long-term oriented management decisions is the topic of a controversial public debate. Also, the existing academic literature provides no clear picture, mainly due to endogeneity problems. In this paper, we reexamine the issue in the context of the recent credit crises, which allows us to solve the endogeneity problem. In the empirical analysis we find that firm, which have awarded stock-based incentives to their executives prior or during the financial crises, face substantially lower cuts in investment spending. These firms also show higher levels of R&D investments during the financial crises. Overall, our results suggest that stock based long-term incentives promote long-term oriented management decisions.

Note: Downloadable document is in German.

Keywords: Executive compensation, investment behavior, long-term orientation, corporate governance

Suggested Citation

Rapp, Marc Steffen and Schaller, Philipp and Wolff, Michael, Do Stock-Based Incentives Promote Long-Term Oriented Firm Behavior? Evidence from the Recent Credit Crises (Fördern Aktienkursbasierte Vergütungsinstrumente Langfristig Orientierte Unternehmensentscheidungen? Lehren aus der Kreditkrise) (March 20, 2012). Zeitschrift für Betriebswirtschaft, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2026385 or http://dx.doi.org/10.2139/ssrn.2026385

Marc Steffen Rapp (Contact Author)

University of Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany

University of Marburg - Marburg Centre for Institutional Economics (MACIE) ( email )

Am Plan
Marburg, 35032
Germany

Philipp Schaller

Technische Universität München - Center for Entrepreneurial and Financial Studies ( email )

Arcisstr. 21
Munich, 80333
Germany
+49 (0)89 289 25440 (Phone)

Michael Wolff

University of Göttingen ( email )

Platz der Göttinger Sieben 3
Göttingen, DE 37073
Germany

HOME PAGE: http://www.contolling.uni-goettingen.de

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