CEO Incentives, Cash Flow, and Investment

20 Pages Posted: 6 Jan 2005

See all articles by John Paul Broussard

John Paul Broussard

University of Oklahoma; Rutgers University; Estonian Business School

Sheree A. Buchenroth

affiliation not provided to SSRN

Eugene A. Pilotte

Rutgers Business School - Camden

Abstract

We estimate the impact of chief executive officer (CEO) incentives on the sensitivity of investment to cash flow during a period of strong economic growth. Our measure of the alignment of managers' and shareholders' interests, pay-performance sensitivity (PPS), incorporates both stock and stock option holdings. Contrary to prior studies, we find that the dominant effect of increasing alignment is to reduce the overinvestment of free cash flow. We find no evidence that incentives exacerbate the severity of financial constraints. We find some evidence that PPS helps reduce the underinvestment of cash flow due to managerial shirking.

Suggested Citation

Broussard, John Paul and Buchenroth, Sheree A. and Pilotte, Eugene A., CEO Incentives, Cash Flow, and Investment. Available at SSRN: https://ssrn.com/abstract=552185

John Paul Broussard

University of Oklahoma ( email )

Norman, OK 73019
United States
4053255591 (Phone)

HOME PAGE: http://https://www.ou.edu/price/finance/faculty/john-paul-broussard

Rutgers University ( email )

Camden, NJ 08102
United States
+18562256647 (Phone)

Estonian Business School ( email )

A. Lauteri 3
Tallinn, 10114
Estonia

Sheree A. Buchenroth

affiliation not provided to SSRN

Eugene A. Pilotte (Contact Author)

Rutgers Business School - Camden ( email )

227 Penn Street
Camden, NJ 08102
United States
856-225-6548 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
8
Abstract Views
2,193
PlumX Metrics