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Executive compensation and firm performance: adjustment dynamics, non-linearity and asymmetry

Author

Listed:
  • Giorgio Canarella

    (Department of Economics and Statistics, California State University, Los Angeles, USA)

  • Mahmoud M. Nourayi

    (Department of Accounting, Loyola Marymount University, LA, USA)

Abstract

The relationship between executive compensation and firm performance is a field of intense theoretical and empirical research. The purpose of this study is to gain additional insights into the nature of this relationship by examining empirically the relatively unexplored areas of its dynamics of adjustment, as well as its non-linearity. The findings of this study show strong evidence in support of the view that (a) executive compensation is characterized by a dynamic process of adjustment, and (b) the relationship between executive compensation and firm performance is non-linear and asymmetric. Additionally, the structure of asymmetry is found to be dependent on the measure of performance. Convexity characterizes the asymmetry of the relationship between executive compensation and market returns, while concavity distinguishes the asymmetry of the relationship between executive compensation and accounting returns. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • Giorgio Canarella & Mahmoud M. Nourayi, 2008. "Executive compensation and firm performance: adjustment dynamics, non-linearity and asymmetry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(4), pages 293-315.
    • Handle: RePEc:wly:mgtdec:v:29:y:2008:i:4:p:293-315
    DOI: 10.1002/mde.1368
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    Cited by:

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    3. Alex Dickson & Ian A. MacKenzie & Petros G. Sekeris, 2022. "Non‐linear revenue evaluation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(5), pages 487-505, November.
    4. Clement Olalekan Olaniyi & Olaolu Richard Olayeni, 2020. "A new perspective into the relationship between CEO pay and firm performance: evidence from Nigeria’s listed firms," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 250-277, December.
    5. Gerrit Kok & Cornelis H. van Schalkwyk & Elda Du Toit, 2021. "The association between board characteristics and the risk-adjusted return of South African companies," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 18(1), pages 58-70, March.
    6. Aleksandra GregoriÄ & SaÅ¡o Polanec & Sergeja SlapniÄ ar, 2010. "Pay me Right: Reference Values and Executive Compensation," European Financial Management, European Financial Management Association, vol. 16(5), pages 778-804, November.
    7. Wang, Qiong & Qiu, Muqing, 2023. "Strength in numbers: Minority shareholders' participation and executives' pay-performance sensitivity," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    8. Timothy King & Jonathan Williams, 2013. "Bank Efficiency and Executive Compensation," Working Papers 13009, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
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    10. Alhashel, Bader S. & Albader, Sulaiman H., 2020. "How do sovereign wealth funds pay their portfolio companies’ executives? Evidence from Kuwait," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 303-322.
    11. Elena Merino & Montserrat Manzaneque & Alba Maria Priego, 2013. "“Board independence” and compensation structure of directors," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 2(2), pages 125-152.
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    13. Cao, Jerry & Pan, Xiaofei & Tian, Gary, 2011. "Disproportional ownership structure and pay-performance relationship: Evidence from China's listed firms," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 541-554, June.

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