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
Date Written: March 20, 2012
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
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