Research Article
Year 2018,
Volume: 10 Issue: 19, 231 - 242, 01.07.2018
Abstract
Shareholders delegate daily operation to their agents
with the assumption that they would work totally for their benefit. However,
individual efforts of agents are not directly observable by the principal
(shareholders). To align the interests of agents and those of shareholders,
compensation schemes are based on either market or accounting measures (or a
combination of the two). This paper, using longitudinal data of 151 listed
Turkish firms over the years of 2006 to 2015, found that total compensation
amount paid to executives and directors is sensitive to both accounting and
market measures. It is revealed that current year net profit and lagged total
shareholder value created played important role in the determination of
compensation level of executives. The estimations revealed that TL 10,000
return provided to shareholders in the previous year caused TL 5 increase in
executives’ total compensation, whereas TL 2 of TL 1000 current year net profit
of the firms is given to the executives. It is believed that compensation
contracts which are sharing only a fraction of created shareholder value with
the agent cannot align the interests of both parties and fully mitigate the
agency problem.
References
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The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics. The Review of Economic Studies, 47(1), 239-253. CANARELLA, Giorgio., & GASPARYAN, Arman. (2008). New Insights into Executive Compensation and Firm Performance: Evidence from a Panel of “New Economy” Firms, 1996-2002. Managerial Finance, 34(8), 537-554. CANARELLA, G., & NOURAYI, Mahmoud. M. (2008). Executive Compensation and Firm Performance: Adjustment Dynamics, Non-linearity and Asymmetry. Managerial and Decision Economics, 29(4), 293-315. CONYON, Martin. J., & Leech, Dennis. (1994). Top Pay, Company Performance and Corporate Governance. Oxford Bulletin of Economics and Statistics, 56(3), 229-247. CONYON, Martin. J., PECK, Simon. I., & SADLER, Graham. (2000). Econometric Modelling of UK Executive Compensation. Managerial Finance, 26(9), 3-20. CORE, John. E., HOLTHAUSEN, Robert. W., & LARCKER, David. F. (1999). Corporate Governance, Chief Executive Officer Compensation, and Firm Performance. Journal of Financial Economics, 51(3), 371-406. DECHOW, Patricia. M., & SLOAN, Richard. G. (1991). Executive Incentives and the Horizon Problem: An Empirical Investigation. Journal of a-Accounting and Economics, 14(1), 51-89. GAVER, Jennifer. J., & Gaver, Kenneth. M. (1993). Additional Evidence on the Association between the Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies. Journal of Accounting and Economics, 16(1-3), 125-160. GUAY, Wayne. R., Core, John. E., & LARCKER, David. F. (2003). Executive Equity Compensation and Incentives: A Survey. FRBNY Economic Policy Review, 27-50. HARRIS, Jared. D. (2009). What’s Wrong with Executive Compensation? Journal of Business Ethics, 85, 147-156. HARRIS, Jared., & BROMILEY, Philip. (2007). Incentives to Cheat: The Influence of Executive Compensation and Firm Performance on Financial Misrepresentation. Organization Science, 18(3), 350-367. HAUSMAN, Jerry. A. (1978). Specification Tests in Econometrics. Econometrica: Journal of the Econometric Society, 1251-1271. HEALY, Paul. M. (1985). The Effect of Bonus Schemes on Accounting Decisions. Journal of Accounting and Economics, 7(1-3), 85-107. HIMMELBERG, Charles. P., HUBBARD, R. G., & PALIA, Darius. (1999). Understanding the Determinants of Managerial Ownership and the Link between Ownership and Performance. Journal of Financial Economics, 53(3), 353-384. JENSEN, Michael. C., & MURPHY, Kevin. J. (1990). Performance Pay and Top-management Incentives. Journal of Political Economy, 98(2), 225-264. KOLE, Stacey. R. (1997). The Complexity of Compensation Contracts. Journal of Financial Economics, 43(1), 79-104. MAIN, Brian. G., Bruce, Alistair., & Buck, Trevor. (1996). Total Board Remuneration and Company Performance. The Economic Journal, 1627-1644. MARCH, James. G. (1984). Notes on Ambiguity and Executive Compensation. Scandinavian Journal of Management Studies, 1(1), 53-64. McCONNELL, John. J., & SERVAES, Henri. (1990). Additional Evidence on Equity Ownership and Corporate Value. Journal of Financial Economics, 27(2), 595-612. MEHRAN, Hamid. (1995). Executive Compensation Structure, Ownership, and Firm Performance. Journal of Financial Economics, 38(2), 163-184. MISHRA, Chandra. S., McCONAUGHY, Daniel. L., & GOBELI, David. H. (2000). Effectiveness of CEO Pay-for-Performance. Review of Financial Economics, 9(1), 1-13. MURPHY, Kevin. J. (1999). Executive Compensation. Handbook of Labor Economics, 3, 2485-2563. PALIA, Darius. (2001). The Endogeneity of Managerial Compensation in Firm Valuation: A Solution. The Review of Financial Studies, 14(3), 735-764. SLOAN, Richard. G. (1993). Accounting Earnings and Top Executive Compensation. Journal of Accounting and Economics, 16(1-3), 55-100. YERMACK, David. (2006). Flights of Fancy: Corporate Jets, CEO Perquisites, and Inferior Shareholder Returns. Journal of Financial Economics, 80(1), 211-242. ZHOU, Xianming. (1999). Executive Compensation and Managerial Incentives: A Comparison between Canada and the United States. Journal of Corporate Finance, 5(3), 277-301.
Year 2018,
Volume: 10 Issue: 19, 231 - 242, 01.07.2018
Abstract
References
- ANG, James. S., & CONSTAND, Richard. L. (1997). Compensation and Performance: the Case of Japanese Managers and Directors. Journal of Multinational Financial Management, 7(4), 275-304. BEBCHUK, Lucian, A. & FRIED, Jesse. M. (2003). Executive Compensation as an Agency Problem. The Journal of Economic Perspectives, 17(3), 71-92. BALTAGI, Badi, H. (2008). Econometric Analysis of Panel Data. John Wiley & Sons, 59-74. BANGHOJ, Jesper., GABRIELSEN, Gorm., PETERSEN, Christian., & PLENBORG, Thomas. (2010). Determinants of Executive Compensation in Privately Held Firms. Accounting & Finance, 50(3), 481-510. BERTRAND, Marianne., & MULLAINATHAN, Sendhil. (2001). Are CEOs Rewarded for Luck? The Ones without Principals Are. The Quarterly Journal of Economics, 116(3), 901-932. BLANCHARD, Olivier. J., LOPEZ-DE-SILANES, F., & SHLEIFER, Andrei. (1994). What Do Firms Do with Cash Windfalls?. Journal of Financial Economics, 36(3), 337-360. BREUSCH, Trevor. S., & PAGAN, Adrian. R. (1980). The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics. The Review of Economic Studies, 47(1), 239-253. CANARELLA, Giorgio., & GASPARYAN, Arman. (2008). New Insights into Executive Compensation and Firm Performance: Evidence from a Panel of “New Economy” Firms, 1996-2002. Managerial Finance, 34(8), 537-554. CANARELLA, G., & NOURAYI, Mahmoud. M. (2008). Executive Compensation and Firm Performance: Adjustment Dynamics, Non-linearity and Asymmetry. Managerial and Decision Economics, 29(4), 293-315. CONYON, Martin. J., & Leech, Dennis. (1994). Top Pay, Company Performance and Corporate Governance. Oxford Bulletin of Economics and Statistics, 56(3), 229-247. CONYON, Martin. J., PECK, Simon. I., & SADLER, Graham. (2000). Econometric Modelling of UK Executive Compensation. Managerial Finance, 26(9), 3-20. CORE, John. E., HOLTHAUSEN, Robert. W., & LARCKER, David. F. (1999). Corporate Governance, Chief Executive Officer Compensation, and Firm Performance. Journal of Financial Economics, 51(3), 371-406. DECHOW, Patricia. M., & SLOAN, Richard. G. (1991). Executive Incentives and the Horizon Problem: An Empirical Investigation. Journal of a-Accounting and Economics, 14(1), 51-89. GAVER, Jennifer. J., & Gaver, Kenneth. M. (1993). Additional Evidence on the Association between the Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies. Journal of Accounting and Economics, 16(1-3), 125-160. GUAY, Wayne. R., Core, John. E., & LARCKER, David. F. (2003). Executive Equity Compensation and Incentives: A Survey. FRBNY Economic Policy Review, 27-50. HARRIS, Jared. D. (2009). What’s Wrong with Executive Compensation? Journal of Business Ethics, 85, 147-156. HARRIS, Jared., & BROMILEY, Philip. (2007). Incentives to Cheat: The Influence of Executive Compensation and Firm Performance on Financial Misrepresentation. Organization Science, 18(3), 350-367. HAUSMAN, Jerry. A. (1978). Specification Tests in Econometrics. Econometrica: Journal of the Econometric Society, 1251-1271. HEALY, Paul. M. (1985). The Effect of Bonus Schemes on Accounting Decisions. Journal of Accounting and Economics, 7(1-3), 85-107. HIMMELBERG, Charles. P., HUBBARD, R. G., & PALIA, Darius. (1999). Understanding the Determinants of Managerial Ownership and the Link between Ownership and Performance. Journal of Financial Economics, 53(3), 353-384. JENSEN, Michael. C., & MURPHY, Kevin. J. (1990). Performance Pay and Top-management Incentives. Journal of Political Economy, 98(2), 225-264. KOLE, Stacey. R. (1997). The Complexity of Compensation Contracts. Journal of Financial Economics, 43(1), 79-104. MAIN, Brian. G., Bruce, Alistair., & Buck, Trevor. (1996). Total Board Remuneration and Company Performance. The Economic Journal, 1627-1644. MARCH, James. G. (1984). Notes on Ambiguity and Executive Compensation. Scandinavian Journal of Management Studies, 1(1), 53-64. McCONNELL, John. J., & SERVAES, Henri. (1990). Additional Evidence on Equity Ownership and Corporate Value. Journal of Financial Economics, 27(2), 595-612. MEHRAN, Hamid. (1995). Executive Compensation Structure, Ownership, and Firm Performance. Journal of Financial Economics, 38(2), 163-184. MISHRA, Chandra. S., McCONAUGHY, Daniel. L., & GOBELI, David. H. (2000). Effectiveness of CEO Pay-for-Performance. Review of Financial Economics, 9(1), 1-13. MURPHY, Kevin. J. (1999). Executive Compensation. Handbook of Labor Economics, 3, 2485-2563. PALIA, Darius. (2001). The Endogeneity of Managerial Compensation in Firm Valuation: A Solution. The Review of Financial Studies, 14(3), 735-764. SLOAN, Richard. G. (1993). Accounting Earnings and Top Executive Compensation. Journal of Accounting and Economics, 16(1-3), 55-100. YERMACK, David. (2006). Flights of Fancy: Corporate Jets, CEO Perquisites, and Inferior Shareholder Returns. Journal of Financial Economics, 80(1), 211-242. ZHOU, Xianming. (1999). Executive Compensation and Managerial Incentives: A Comparison between Canada and the United States. Journal of Corporate Finance, 5(3), 277-301.
There are 1 citations in total.
Details
| Primary Language | English |
|---|---|
| Journal Section | Makaleler |
| Authors | |
| Publication Date | July 1, 2018 |
| Submission Date | December 28, 2017 |
| Published in Issue | Year 2018 Volume: 10 Issue: 19 |
