Executive bonus compensation and financial leverage: do growth and executive ownership matter?

Date

2021

Advisors

Journal Title

Journal ISSN

ISSN

Volume Title

Publisher

Emerald

Type

Article

Peer reviewed

Yes

Abstract

Purpose: This study examines the impact of executive bonus compensation on a firm’s financial leverage policy and the extent to which this compensation–leverage relation is moderated by firm growth and executive ownership.

Design/method/approach: Using data from 213 non-financial and non-utility UK FTSE 350 firms for the period 2007-2015, generating a total of 1,784 firm-year observations, panel econometric methods are employed to test our model.

Findings: Drawing insights from agency theoretic view, we uncover that managerial cash bonus compensation is negatively and significantly related to financial leverage. However, stock bonus compensation has a positive and significant impact on leverage. We also observe that compensation–leverage is moderated by both firm growth and executive ownership. Our results remain robust to alternative econometric models.

Originality/value: While this paper builds on the risk-motivated argument of executive bonus compensation literature, it is the first – to the best of our knowledge – to explore the bonus compensation-corporate financial leverage and, particularly, examine the extent to which firm growth and corporate executive ownership matter in this relationship.

Description

The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.

Keywords

Executive bonus compensation, Leverage, UK

Citation

Adu-Ameyaw E., Danso A., Acheampong S. and Akwei C. (2021) Executive bonus compensation and financial leverage: do growth and executive ownership matter? International Journal of Accounting and Information Management,

Rights

Research Institute

Finance and Banking Research Group (FiBRe)