Managerial compensation and fixed intangible assets investment: the role of managerial ownership and firm characteristics

Purpose: This study examines how cash and stock bonus compensations influence top executives to allocate a firm’s resources to fixed intangible assets investment and the extent to which this relationship is conditional on executives’ ownership, firm growth, internal cash flow and leverage. 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 1,748 firm-year observations, panel econometric methods are employed to test our model. Findings: We observe that executives’ cash bonus compensation positively impacts fixed intangible assets investment. However, executives’ stock bonus compensation has a negative and significant influence on fixed intangible assets. We further observe that executives either cash bonus or stock bonus crucially invest more in fixed intangible assets when the firm has a growth potential. Also, both cash bonus and stock bonus executives in firms with lower internal cash flow spend less on fixed intangible assets. Similar results are also observed for those stock bonus-motivated executives with an increase in fixed intangible assets for low leverage firms but a decrease for high leverage ones. Originality/value: While this paper builds on the classic Q theory of investment literature, it is the first – to the best of our knowledge – to explore how cash and stock bonus compensations influence top executives to allocate a firm’s resources to fixed intangible assets investment and the extent to which this relationship is conditional on executives’ ownership, firm growth, internal cash flow and leverage.