Agency and Corporate Investment: The Role of Executive Compensation and Corporate Governance

Posted: 18 Apr 2004

See all articles by Sok-Hyon Kang

Sok-Hyon Kang

George Washington University - School of Business

Praveen Kumar

University of Houston - Department of Finance

Hyunkoo Lee

International University of Japan - Graduate School of International Management

Abstract

The agency theory of the firm implies that executive incentive compensation and corporate investment policies are endogenously determined. We estimate jointly the relationship between long-term corporate investment and CEO incentive compensation structure, while considering the strength of corporate governance mechanisms. The analysis indicates that long-term business investment is positively related to the weight placed on equity-based incentive compensation, after controlling for internal financing constraints and the quality of the investment opportunity set. We also confirm that CEO compensation structure is influenced by factors that represent the strength of the firm's internal governance mechanisms.

JEL Classification: J33, G34, G31

Suggested Citation

Kang, Sok-Hyon and Kumar, Praveen and Lee, Hyunkoo, Agency and Corporate Investment: The Role of Executive Compensation and Corporate Governance. Available at SSRN: https://ssrn.com/abstract=519522

Sok-Hyon Kang

George Washington University - School of Business ( email )

405 Government Hall
GWU
Washington, DC 20052
United States
(202) 994-6058 (Phone)
(202) 994-5164 (Fax)

Praveen Kumar (Contact Author)

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States
713-743-4770 (Phone)
713-743-4789 (Fax)

Hyunkoo Lee

International University of Japan - Graduate School of International Management ( email )

777 Anaji-Shinden
Yamato-machi, Niigata-ken, 949-7277
Japan

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