Agency and corporate investment: The role of executive compensation and corporate governance

Journal of Business

Volumn 79, Issue 3, 2006, Pages 1127-1147

  Kang, Sok Hyon ^a   Kumar, Praveen ^b   Lee, Hyunkoo ^c  

^a GEORGE WASHINGTON UNIVERSITY   (United States)

^b UNIVERSITY OF HOUSTON   (United States)

^c HONG KONG UNIVERSITY OF SCIENCE AND TECHNOLOGY   (Hong Kong)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 33646879195     PISSN: 00219398     EISSN: None     Source Type: Journal    
DOI: 10.1086/500671     Document Type: Review

References (79)

1. Abel, A. 1980. Empirical investment equations: An integrative framework. Carnegie-Rochester Conference Series on Public Policy 12:39-91.
2. Aggarwal, R., and A. Samwick. 2002. Empire-builders and shirkers: Investment, firm performance, and managerial incentives. Working paper, Dartmouth College.
3. Aghion, P., and P. Bolton. 1992. An incomplete contracts approach to financial contracting. Review of Economic Studies 59 (July): 473-94.
4. Agrawal, A., and G. Mandelker. 1987. Managerial incentives and corporate investment and financial decisions. Journal of Finance 42 (September): 823-37.
5. Amihud, Y., and B. Lev. 1981. Risk reduction as managerial motive for conglomerate mergers. Bell Journal of Economics 12 (Autumn): 605-17.
6. Baber, W. R., S. N. Janakiraman, and S. Kang. 1996. Investment opportunities and the structure of executive compensation. Journal of Accounting and Economics 21 (June): 297-318.
7. Berger, P., E. Ofek, and D. Yermack. 1997. Managerial entrenchment and capital structure decisions. Journal of Finance 52 (September): 1411-38.
8. Bizjak, J. M., J. A. Brickley, and J. L. Coles. 1993. Stock-based incentive compensation and investment behavior. Journal of Accounting and Economics 16 (January-July): 349-72.
9. Black, F., and M. Scholes. 1973. The pricing of options and corporate liabilities. Journal of Political Economy 81 (May/June): 637-54.
10. Brickley, J. A., J. S. Linck, and J. L. Coles. 1999. What happens to CEOs after they retire? New evidence on career concerns, horizon problems, and CEO incentives. Journal of Financial Economics 52 (June): 341-77.
11. Bryan, S., L. Hwang, and S. Lilien. 2000. CEO stock-based compensation: An empirical analysis of incentive-intensity, relative mix, and economic determinants. Journal of Business 73 (October): 661-93.
12. Campbell, T., Y. Chan, and A. Marino. 1989. Incentive contracts for managers who discover and manage investment projects. Journal of Economic Behavior and Organization 12 (December): 353-64.
13. Chirinko, R. 1993. Business fixed spending: Modeling strategies, empirical results, and policy implications. Journal of Economic Literature 31 (December): 1875-1911.
14. Christensen, J. 1981. Communication in agencies. Bell Journal of Economics 12 (Autumn): 661-74.
15. Cyert, R., S. Kang, and P. Kumar. 2002. Corporate governance, takeovers, and top management compensation: Theory and evidence. Management Science 48 (April): 453-69.
16. Dechow, P. M., and R. G. Sloan. 1991. Executive incentive and the horizon problem. Journal of Accounting and Economics 14 (March): 51-89.
17. Demsetz, H., and K. Lehn. 1985. The structure of corporate ownership: Causes and consequences. Journal of Political Economy 93 (December): 1155-77.
18. Dertouzos, M., R. Lester, and R. Solow. 1988. Made in America: Regaining the productive edge. Cambridge, MA.: MIT Press.
19. Eaton, J., and H. S. Rosen. 1983. Agency, delayed compensation, and the structure of executive remuneration. Journal of Finance 38 (December): 1489-1505.
20. Fama, E. F., and M. C. Jensen. 1983. Separation of ownership and control. Journal of Law and Economics 26 (June): 301-26.
21. Fazzari, S. M., R. G. Hubbard, and B. C. Petersen. 1988. Investment, financing decisions, and tax policy. American Economic Review 78 (May): 200-205.
22. Fazzari, S. M., and B. C. Petersen. 1993. Working capital and fixed investment: New evidence on financing constraints. Rand Journal of Economics 24 (Autumn): 328-42.
23. Fenn, G. W., and N. Liang. 2001. Corporate payout policy and managerial stock incentives. Journal of Financial Economics 60 (April): 45-72.
24. Finkelstein, S., and D. Hambrick. 1989. Chief executive compensation: A study of the intersection of markets and political processes. Strategic Management Journal 10 (March/April): 121-34.
25. Fluck, Z. 1999. The dynamics of the management-shareholder conflict. Review of Financial Studies 12 (Summer): 379-404.
26. Froot, K., A. Perold, and J. Stein. 1992. Shareholder trading practices and corporate investment horizons. Journal of Applied Corporate Finance 5 (Summer): 42-58.
27. Garvey, G. 1997. Marketable incentive contracts and capital structure irrelevance. Journal of Finance 52 (March): 353-78.
28. Gaver, J. J., and K. M. Gaver. 1993. Additional evidence on the association between the investment opportunity set and corporate financing, dividend, and compensation policies. Journal of Accounting and Economics 16 (January-July): 125-60.
29. Gibbons, R., and K. J. Murphy. 1992a. Does executive compensation affect investment? Journal of Applied Corporate Finance 5 (Summer): 99-109.
30. 1992b. Optimal incentive contracts in the presence of career concerns: Theory and evidence. Journal of Political Economy 100 (June): 468-505.
31. Hall, B. J., and J. B. Liebman. 1998. Are CEOs really paid like bureaucrats? Quarterly Journal of Economics 113 (August): 653-91.
32. Hart, O. 1995. Firm, contracts and financial structure. London: Oxford University Press.
33. Heckman, J. 1979. Sample bias as a specification error. Econometrica 47 (January): 153-62.
34. Hermalin, B., and M. Weisbach. 1991. The effects of board composition and direct incentives on firm performance. Financial Management 20 (Winter): 101-12.
35. Hirshleifer, D., and Y. Sun. 1992. Risk, managerial effort, and project choice. Journal of Financial Intermediation 2 (September): 308-45.
36. Hirshleifer, D., and A. Thakor. 1992. Managerial conservatism, project choice and debt. Review of Financial Studies 5 (Fall): 437-50.
37. Holmstrom, B. 1979. Moral hazard and observability. Bell Journal of Economics 10 (Spring): 74-91.
38. Holmstrom, B., and J. Ricart i Costa. 1986. Managerial incentives and capital management. Quarterly Journal of Economics 101 (November): 835-60.
39. Holmstrom, B., and L. Weiss. 1985. Managerial incentives, investment and aggregate implications. Review of Economic Studies 52 (July): 403-26.
40. Holthausen, R. W., D. F. Larcker, and R. G. Sloan. 1995. Business unit innovation and the structure of executive compensation. Journal of Accounting and Economics 19 (March-May): 279-313.
41. Hoshi, T., A. Kashyap, and D. Scharfstein. 1991. Corporate structure, liquidity, and investment: Evidence from Japanese industrial groups. Quarterly Journal of Economics 106 (February): 33-60.
42. Hubbard, G., A. Kashyap, and T. Whited. 1995. Internal finance and firm investment. Journal of Money, Credit and Banking 27 (August): 683-701.
43. Jacobson, R., and D. Aaker. 1993. Myopic management behavior with efficient, but imperfect, financial markets: A comparison of information asymmetries in the U.S. and Japan. Journal of Accounting and Economics 16 (October): 383-405.
44. Jensen, M. C. 1986. Agency costs of free cash flow, corporate finance, and the market for takeovers. American Economic Review 76 (May): 323-29.
45. _. 1993. The modern industrial revolution, exit, and failure of internal control systems. Journal of Finance 48 (July): 831-80.
46. Jensen, M. C., and W. Meckling. 1976. Theory of the firm: Managerial behavior, agency costs, and capital structure. Journal of Financial Economics 3 (October): 305-60.
47. Jensen, M. C., and K. J. Murphy. 1990. Performance pay and top-management incentives. Journal of Political Economy 98 (April): 225-64.
48. John, T. A., and K. John. 1993. Top-management compensation and capital structure. Journal of Finance 48 (July): 949-74.
49. Kole, S. R. 1997. The complexity of compensation contracts. Journal of Financial Economics 43 (January): 79-104.
50. Lambert, R. A. 1986. Executive effort and selection of risky projects. Rand Journal of Economics 17 (Spring): 77-88.
51. Lambert, R. A., W. N. Lannen, and D. F. Larcker. 1989. Executive stock option plans and corporate dividend policy. Journal of Financial and Quantitative Analysis 24 (September): 409-25.
52. Lambert, R. A., and D. F. Larcker. 1991. Executive compensation, corporate decision making and shareholder wealth: A review of the evidence. In Executive compensation, ed. F. Foulkes. Boston: Harvard Business Press.
53. Lamont, O. 1997. Cash flow and investment: Evidence from international capital markets. Journal of Finance 52 (March): 83-109.
54. Lewellen, W. G., C. Loderer, and K. Martin. 1987. Executive compensation and executive incentive problems: An empirical analysis. Journal of Accounting and Economics 9 (December): 287-310.
55. Mehran, H. 1992. Executive incentive plans, corporate control, and capital structure. Journal of Financial and Quantitative Analysis 27 (December): 539-60.
56. _. 1995. Executive compensation structure, ownership, and firm performance. Journal of Financial Economics 38 (June): 163-84.
57. Mehran, H., G. E. Nogler, and K. B. Schwartz. 1998. CEO incentive plans and corporate liquidation policy. Journal of Financial Economics 50 (December): 319-49.
58. Mehran, H., and J. Tracy. 2001. The effect of employee stock options on the evolution ofcompensation in the 1990s. Federal Reserve Bank of New York Economic Policy Review 7 (December): 17-34.
59. Miller, M., and K. Rock. 1985. Dividend policy under asymmetric information. Journal of Finance 40 (September): 1031-51.
60. Murphy, K. J. 1985. Corporate performance and managerial remuneration: An empirical analysis. Journal of Accounting and Economics 7 (April): 11-42.
61. _1986. Incentives, learning, and compensation: A theoretical and empirical investigation of managerial labor contracts. Rand Journal of Economics 7 (Spring): 59-76.
62. _1999. Executive compensation. In Handbook of labor economics, vol. 3, ed. O. Ashenfelter and D. Card. Amsterdam: North-Holland.
63. Murphy, K. J., and J. L. Zimmerman. 1993. Financial performance surrounding CEO turnover. Journal of Accounting and Economics 16 (January-July): 273-315.
64. Myers, S., and N. Majluf. 1984. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics 13 (June): 187-221.
65. Nelson, F., and L. Olsen. 1978. Specification and estimation of a simultaneous equation model with limited dependent variables. International Economic Review 19 (October): 695-710.
66. Perfect, S., and K. Wiles. 1994. Alternative constructions of Tobin's Q: An empirical comparison. Journal of Empirical Finance 1 (July): 313-41.
67. Porter, M. 1992. Capital choices: Changing the way America invests in industry. Journal of Applied Corporate Finance 5 (Summer): 4-16.
68. Ross, S. 1973. The economic theory of agency: The principal's problem. American Economic Review 63 (May): 134-39.
69. Sanders, W., A. Davis-Blake, and J. Frederickson. 1995. Prizes with strings attached: Determinants of the structure of CEO compensation. Academy of Management Best Papers Proceedings, pp. 266-70.
70. Shleifer, A., and R. Vishny. 1986. Large shareholders and corporate control. Journal of Political Economy 94 (June): 461-88.
71. _1997. A survey of corporate governance. Journal of Finance 52 (June): 737-83.
72. Smith, C. W., Jr., and R. L. Watts. 1992. The investment opportunity set and corporate financing, dividend, and compensation policies. Journal of Financial Economics 32 (December): 263-92.
73. Stulz, R. 1990. Managerial discretion and optimal financing policies. Journal of Financial Economics 26 (July): 3-27.
74. Tobin, J. 1969. A general equilibrium approach to monetary theory. Journal of Money, Credit and Banking 1 (February): 15-29.
75. White, L. 1996. Executive compensation and dividend policy. Journal of Corporate Finance 2 (July): 335-58.
76. Whited, T. 1992. Debt, liquidity constraints, and corporate investment: Evidence from panel data. Journal of Finance 47 (September): 1425-60.
77. Wilson, R. 1969. The structure of incentives for decentralization under uncertainty. In La Decision, ed. M. Guilbaud. Paris: Centre National de le Recherche Scientifique.
78. Yermack, D. 1995. Do corporations award CEO stock options effectively? Journal of Financial Economics 39 (October-November): 237-69.
79. Zwiebel, J. 1996. Dynamic capital structure under managerial entrenchment. American Economic Review 86 (December): 1197-1215.