Heterogeneity in the Effect of Managerial Equity Incentives on Firm Value

56 Pages Posted: 20 May 2020

See all articles by Bradley W. Benson

Bradley W. Benson

Ball State University - Department of Finance and Insurance

Hui L. James

University of Texas at Tyler

Jung Chul Park

University of South Florida

Date Written: August 2019

Abstract

We document significant heterogeneity in the relation between chief executive officer (CEO) equity incentives and firm value using quantile regression. We show that CEO delta is more effective in the presence of ample investment opportunities, while CEO vega is more beneficial for firms lacking investment opportunities. Further, Tobin's Q increases in CEO delta for more risk‐tolerant firms but increases in CEO vega for more risk‐averse firms. We also observe that higher monitoring intensity after the Sarbanes‐Oxley Act reduces CEO delta's role in compensation. Risk aversion alters the optimal incentive‐value relation, and the nature of this relation also depends on the level of Tobin's Q.

Keywords: executive compensation, managerial equity incentives, firm value, SOX

JEL Classification: G30, G34, J33, M52

Suggested Citation

Benson, Bradley W. and James, Hui L. and Park, Jung Chul, Heterogeneity in the Effect of Managerial Equity Incentives on Firm Value (August 2019). Financial Review, Vol. 54, Issue 3, pp. 583-638, 2019, Available at SSRN: https://ssrn.com/abstract=3601139 or http://dx.doi.org/10.1111/fire.12185

Bradley W. Benson (Contact Author)

Ball State University - Department of Finance and Insurance ( email )

Muncie, IN 47306-0340
United States
765-285-5299 (Phone)
765-285-4314 (Fax)

Hui L. James

University of Texas at Tyler

Tyler, TX
United States

Jung Chul Park

University of South Florida ( email )

Tampa, FL 33620
United States
813-974-9680 (Phone)
813-974-3084 (Fax)

HOME PAGE: http://www.usf.edu/business/contacts/park-jung-chul.aspx

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