Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305861 
Year of Publication: 
2022
Citation: 
[Journal:] Global Business & Finance Review (GBFR) [ISSN:] 2384-1648 [Volume:] 27 [Issue:] 4 [Year:] 2022 [Pages:] 108-117
Publisher: 
People & Global Business Association (P&GBA), Seoul
Abstract: 
Purpose: The nature of each component of executive compensation varies, resulting in variances in executive in- centives and investor pricing. To examine whether there is a differential relation between executive compensation components and cost of equity capital, this study decomposes the effects of executive compensation components on the cost of equity capital into wealth alignment, contribution, time horizon, and equity incentive effects. Design/methodology/approach: The hypotheses on the impact of each transmission mechanism of executive compensation component are separately developed in this study. The regression analyses are based on a sample of 11,649 firm-year observations of the U.S. listed companies during 1998-2014. Findings: The findings support all hypotheses by showing a significant reduction in cost of equity capital for bonus plans, long-term performance plans, and shareholdings, but a significant increase in cost of equity capital for salary and stock option. Research limitations/implications: The conclusions of this study are based on an examination of publicly listed companies in the United States; the hypotheses can be tested in other countries with various business environments and cultures. Originality/value: This study is a first attempt to explain the transmission mechanisms of executive compensation components and cost of equity capital by presenting evidence in support of wealth alignment effect, contribution effect, time horizon effect, and equity incentive effect.
Subjects: 
Executive compensation
Cost of equity
Incentives
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

Files in This Item:
File
Size
363.22 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.