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Non-uniform effects of CEO equity-based compensation on firm performance – An application of a panel threshold regression model

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  • Kuo, Chii-Shyan
  • Li, Ming-Yuan Leon
  • Yu, Shang-En

Abstract

We use panel-data threshold models to examine the non-uniform relation between Chief Executive Officer (CEO) equity-based compensation and earnings-based performance. Prior studies examining this very issue have arbitrarily adopted various exogenous criteria to partition the sample, and thus the inferences could be misleading. To address this issue, we employ the threshold regression models that allow the data itself to endogenously generate several regimes identified by the thresholds. Our empirical results show that not only is the positive impact of CEO equity incentives on firm performance more pronounced for companies with lower and moderate levels of CEO stock-based incentive pay, but also for less-profitable firms. The results are consistent with the position that excessive equity-based awards are unable to benefit firm performance, and that share-based compensation is more effective for start-up firms with low profit.

Suggested Citation

  • Kuo, Chii-Shyan & Li, Ming-Yuan Leon & Yu, Shang-En, 2013. "Non-uniform effects of CEO equity-based compensation on firm performance – An application of a panel threshold regression model," The British Accounting Review, Elsevier, vol. 45(3), pages 203-214.
    • Handle: RePEc:eee:bracre:v:45:y:2013:i:3:p:203-214
    DOI: 10.1016/j.bar.2013.06.008
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    More about this item

    Keywords

    Threshold model; CEO equity-based compensation; Pay–performance relation; From the sources identified in this paper;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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