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Is Innovativeness a Link between Pay and Performance?

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  • Michael K. Fung

Abstract

The relationship between innovativeness and pay‐performance sensitivity is theoretically ambiguous because innovative activities simultaneously enhance the productivity of executives in creating shareholder value (productivity effect) and increase the volatility of the firm's performance (volatility effect). The empirical findings from the pooled sample suggest that innovativeness and executive pay‐performance sensitivity are inversely related. The extent to which the volatility effect outweighed the productivity effect was especially pronounced during the 2000‐2003 market crash period. While the productivity effect is stronger than the volatility effect in both the CEO and low‐free‐cash‐flow subsamples, the volatility effect is stronger than the productivity effect in both the non‐CEO and high‐free‐cash‐flow subsamples.

Suggested Citation

  • Michael K. Fung, 2009. "Is Innovativeness a Link between Pay and Performance?," Financial Management, Financial Management Association International, vol. 38(2), pages 411-429, June.
    • Handle: RePEc:bla:finmgt:v:38:y:2009:i:2:p:411-429
    DOI: 10.1111/j.1755-053X.2009.01041.x
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    Cited by:

    1. Bradley W. Benson & Wallace N. Davidson, 2010. "The Relation between Stakeholder Management, Firm Value, and CEO Compensation: A Test of Enlightened Value Maximization," Financial Management, Financial Management Association International, vol. 39(3), pages 929-964, September.
    2. Bradley W. Benson & Wallace N. Davidson III & Hongxia Wang & Dan L. Worrell, 2011. "Deviations from Expected Stakeholder Management, Firm Value, and Corporate Governance," Financial Management, Financial Management Association International, vol. 40(1), pages 39-81, March.
    3. Julio Pindado & Valdoceu De Queiroz & Chabela De La Torre, 2010. "How Do Firm Characteristics Influence the Relationship between R&D and Firm Value?," Financial Management, Financial Management Association International, vol. 39(2), pages 757-782, June.
    4. Dalia Susnienė & Ojaras Purvinis, 2015. "Empirical Insights on Understanding Stakeholder Influence," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 16(4), pages 845-860, August.

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