Executive compensation, share repurchases and investment expenditures: econometric evidence from US firms

Executive compensation, share repurchases and investment expenditures: econometric evidence from... This paper modeled the dynamic inter-relationships between average salary, bonus, and stock options granted to top executives of 700 US firms using a merged ExecuComp and Compustat database. The effects of stock options granted and exercised on firms’ share repurchases and research and development and investment expenditures were investigated, taking into account simultaneity and distributional misspecification aspects. First, firms’ total assets, intangible assets, market-to-book value, and share repurchases were positively associated with the values of stock options granted. Second, stock options exercised in the previous year were significant predictors of share repurchases indicating that firms avoided dilution of earnings per share. Third, share repurchases and stock options granted were negatively associated with expenditures on research and development and long-term investments. Overall, the results suggest that high levels of stock options granted to executives and share repurchases are unlikely to have beneficial effects for raising future productivity. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Executive compensation, share repurchases and investment expenditures: econometric evidence from US firms

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Publisher
Springer US
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-011-0260-1
Publisher site
See Article on Publisher Site

Abstract

This paper modeled the dynamic inter-relationships between average salary, bonus, and stock options granted to top executives of 700 US firms using a merged ExecuComp and Compustat database. The effects of stock options granted and exercised on firms’ share repurchases and research and development and investment expenditures were investigated, taking into account simultaneity and distributional misspecification aspects. First, firms’ total assets, intangible assets, market-to-book value, and share repurchases were positively associated with the values of stock options granted. Second, stock options exercised in the previous year were significant predictors of share repurchases indicating that firms avoided dilution of earnings per share. Third, share repurchases and stock options granted were negatively associated with expenditures on research and development and long-term investments. Overall, the results suggest that high levels of stock options granted to executives and share repurchases are unlikely to have beneficial effects for raising future productivity.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 14, 2011

References

  • Errors in estimating share repurchases
    Banyi, M; Dyl, E; Kahle, K
  • Real investment implications of employee stock option exercises
    Bens, D; Nagar, V; Wong, M
  • Managerial motivation and timing of open market share repurchases
    Bozanic, Z
  • Executive compensation and firm performance: adjustment dynamics, non-linearity and asymmetry
    Canarella, G; Nourayi, M
  • Is R&D always beneficial?
    Chang, HL
  • The use of equity grants to manage optimal equity incentive levels
    Core, J; Guay, W

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