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Do large firms overly use stock-based incentive compensation?

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  • Ming-Yuan Leon Li
  • Shang-En Shine Yu

Abstract

This study employs the panel threshold model to reexamine the non-monotonic relationship between CEO stock-based compensation and firm earnings across various firm-size conditions. The feasibility of the model is tested using data for US non-financial firms from 1993 to 2005. Our empirical results indicate that while a positive relationship between the CEO stock-based pay and earnings is presented for small-size firms, a negative impact of CEO stock-based compensation on earnings is shown when large-size firms are concerned. Further, the longstanding puzzle of whether the CEO stock-based pay could enhance earnings among earlier studies could be satisfactorily explained by our empirical results.

Suggested Citation

  • Ming-Yuan Leon Li & Shang-En Shine Yu, 2011. "Do large firms overly use stock-based incentive compensation?," Journal of Applied Statistics, Taylor & Francis Journals, vol. 38(8), pages 1591-1606, July.
    • Handle: RePEc:taf:japsta:v:38:y:2011:i:8:p:1591-1606
    DOI: 10.1080/02664763.2010.515676
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