Does Executive Compensation Affect Investment? / Kevin J. Murphy, Robert Gibbons.

Format:

Book

Author/Creator:

Murphy, Kevin J.

Contributor:

National Bureau of Economic Research.

Gibbons, Robert.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4135.

NBER working paper series no. w4135

Language:

English

Subjects (All):

Investments--Decision making.

Investments.

International business enterprises.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1992.

Cambridge, Massachusetts : National Bureau of Economic Research, 1992.

Summary:

Investment decisions require trading off current expenditures against future revenues. If revenues extend far enough into the future, the executives responsible for designing long-run investment policy may no longer be in office by the time all the revenues are realized. We present evidence that: (1) on average, executives are close to leaving office (relative to the payout period of many investments); (2) bonuses based on accounting earnings constitute an important part of compensation for the typical executive; and (3) executives respond in predictable ways to compensation plans based on accounting measures of earnings. Based on these facts, we hypothesize that existing compensation policy induces executives to reduce investments during their last years in office. In our empirical work, however, we find that investment expenditures on research and development and on advertising tend to be largest in the final years of a CEO's time in office. We offer several possible explanations for this surprising finding

Notes:

Print version record

August 1992.