Managerial Equity Incentives and the Investment-q Sensitivity

42 Pages Posted: 3 Oct 2016 Last revised: 1 Aug 2018

See all articles by T. Beau Page

T. Beau Page

affiliation not provided to SSRN

Date Written: November 24, 2016

Abstract

We consider the effect of the agency problem between firm managers and shareholders on corporate investment. We derive investment regressions from a model of investment in which managers, who have control over corporate investment, have a preference to under- or overinvest. We show that these regressions are better-specified than traditional investment-q regressions, as they have significantly more explanatory power, and no investment-cashflow sensitivity. Our results show that executive compensation is used to combat managers' preference to underinvest, managers are more likely to underinvest at low levels of q and equity incentives are more powerful when investment incentives are low.

Keywords: CEO Compensation, Corporate Investment, Q Theory

JEL Classification: G32, E22

Suggested Citation

Page, Beau, Managerial Equity Incentives and the Investment-q Sensitivity (November 24, 2016). Available at SSRN: https://ssrn.com/abstract=2846283

Beau Page (Contact Author)

affiliation not provided to SSRN

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