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Executive bonus compensation and financial leverage: do growth and executive ownership matter?

Author

Listed:
  • Emmanuel Adu-Ameyaw
  • Albert Danso
  • Samuel Acheampong
  • Cynthia Akwei

Abstract

Purpose - This study aims to examine the impact of executive bonus compensation on a firm’s financial leverage policy and the extent to which this compensation–leverage relation is moderated by firm growth and executive ownership. Design/methodology/approach - Using data from 213 non-financial and non-utility UK FTSE 350 firms for the period 2007–2015, generating a total of 1,784 firm-year observations, panel econometric methods are used to test the model. Findings - Drawing insights from agency theoretic view, this paper uncovers that managerial cash bonus compensation is negatively and significantly related to financial leverage. However, stock bonus compensation has a positive and significant impact on leverage. This study also observes that compensation–leverage is moderated by both firm growth and executive ownership. The results remain robust to alternative econometric models. Originality/value - While this paper builds on the risk-motivated argument of executive bonus compensation literature, it is the first – to the best of the knowledge – to explore the bonus compensation-corporate financial leverage and, particularly, examine the extent to which firm growth and corporate executive ownership matter in this relationship.

Suggested Citation

  • Emmanuel Adu-Ameyaw & Albert Danso & Samuel Acheampong & Cynthia Akwei, 2021. "Executive bonus compensation and financial leverage: do growth and executive ownership matter?," International Journal of Accounting & Information Management, Emerald Group Publishing Limited, vol. 29(3), pages 392-409, May.
    • Handle: RePEc:eme:ijaimp:ijaim-09-2020-0141
    DOI: 10.1108/IJAIM-09-2020-0141
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    Citations

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    Cited by:

    1. Revuelto-Taboada, Lorenzo & Duques-Ospina, Marcelo, 2024. "Internal and external determinants of the use of supplementary pension plans in manager compensation," TEC Empresarial, School of Business, Costa Rica Institute of Technology (ITCR), vol. 18(1), pages 84-100.

    More about this item

    Keywords

    UK; Leverage; Executive bonus compensation; G30; G32; G34;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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