Executive pay and market value sensitivity
Executive pay relative to that of average workers has risen dramatically worldwide. Such a high level of executive pay raises the question of whether a steep rise in executive pay affects firm value. This study examined the relationship between executive pay and firm value. A panel smooth t...
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| Format: | Article |
| Language: | English |
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Economists' Association of Vojvodina
2016-01-01
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| Series: | Panoeconomicus |
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| Online Access: | http://www.doiserbia.nb.rs/img/doi/1452-595X/2016/1452-595X1604411L.pdf |
| Summary: | Executive pay relative to that of average workers has risen dramatically
worldwide. Such a high level of executive pay raises the question of whether
a steep rise in executive pay affects firm value. This study examined the
relationship between executive pay and firm value. A panel smooth transition
regression model is adopted to determine an optimal level of executive pay
that maximizes firm value for a sample of 512 Taiwanese-listed firms over the
period 2006-2011. The finding is that when the ratio of executive pay to net
income after tax exceeds 2.71%, the firm value increases. The results suggest
a correlation between large executive ownership (corresponding to high
executive pay) and both increased operational efficiencies and firm value.
These findings may be useful when contemplating executive compensation
policy. |
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| ISSN: | 1452-595X 2217-2386 |