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Investment Opportunities and the Relation Between Equity Value and Employees’ Bonus

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  • Chih‐Ying Chen

Abstract

A sample of firms where employee stock options and other long‐term incentives are absent but an annual bonus is required is examined. A positive relation is found between firm equity value and stock bonus but not cash bonus. The positive relation is stronger when the firm has greater investment opportunities. Additionally, the relation is shown to be nonlinear in the sense that the marginal effect of stock bonus on equity value is positive but decreasing (negative) when the stock bonus is below (above) the breakpoint. Overall, the annual stock bonus is valued positively by investors even though it is linked to the firm's contemporaneous but not future performance.

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  • Chih‐Ying Chen, 2003. "Investment Opportunities and the Relation Between Equity Value and Employees’ Bonus," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(7‐8), pages 941-974, September.
    • Handle: RePEc:bla:jbfnac:v:30:y:2003:i:7-8:p:941-974
    DOI: 10.1111/1468-5957.05346
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    References listed on IDEAS

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    1. Hsiang-Lan Chen & Yen-Sheng Huang, 2006. "Employee stock ownership and corporate R&D expenditures: evidence from Taiwan's information-technology industry," Asia Pacific Journal of Management, Springer, vol. 23(3), pages 369-384, September.
    2. Harris, Oneil & Karl, J. Bradley & Lawrence, Ericka, 2019. "CEO compensation and earnings management: Does gender really matters?," Journal of Business Research, Elsevier, vol. 98(C), pages 1-14.
    3. Mao-Chang Wang, 2015. "Value Relevance of Tobin’s Q and Corporate Governance for the Taiwanese Tourism Industry," Journal of Business Ethics, Springer, vol. 130(1), pages 223-230, August.
    4. Chen, Ching-Lung & Lu, Ming-Che & Yen, Gili, 2012. "Dilution/incentive effects associating with employee bonuses in Taiwan: Empirical findings under two regimes," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 267-283.
    5. Her‐Jiun Sheu & Huimin Chung & Chih‐Liang Liu, 2010. "Comprehensive Disclosure of Compensation and Firm Value: The Case of Policy Reforms in an Emerging Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(9‐10), pages 1115-1144, November.
    6. Wang, Jin-Ying, 2014. "Controlling shareholder entrenchment: Bonuses versus dividends," International Review of Economics & Finance, Elsevier, vol. 32(C), pages 143-158.
    7. Chii-Shyan Kuo & Jow-Ran Chang & Shih-Ti Yu, 2013. "Effect of mandatory pro forma earnings disclosure on the relation between CEO share bonuses and firm performance," Review of Quantitative Finance and Accounting, Springer, vol. 40(2), pages 189-215, February.

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