Innovation, efficiency. and strategic performance evaluation in diversified firms /
This research explores the influence of incentive, or performance contingent compensation on the decision horizons of top, or corporate level managers. Agency theory suggests that performance contingent compensation serves to align shareholder and manager interests, such that agency costs are atten...
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| Format: | Thesis Book |
| Language: | English |
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[Place of publication not identified] :
[publisher not identified] ;
1996.
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| Online Access: | http://proxy.library.tamu.edu/login?url=http://proquest.umi.com/pqdweb?did=739653211&sid=1&Fmt=2&clientId=2945&RQT=309&VName=PQD |
| Summary: | This research explores the influence of incentive, or performance contingent compensation on the decision horizons of top, or corporate level managers. Agency theory suggests that performance contingent compensation serves to align shareholder and manager interests, such that agency costs are attenuated (the incentive alignment hypothesis). However, some research asserts that incentive compensation shortens managerial time horizons by creating disincentives for executives to engage in more risky, long-term discretionary projects. A number of reasons for this short-term orientation have been suggested, including: the use of short-term accounting performance measures as a basis for reward in executive compensation contracts, pressures from institutional investors, and high levels of "noise," or systematic risk in stock market measures of performance. However, this research argues that incentives can be designed to foster the managerial risk profile necessary to implement a given diversification strategy. More specifically, it is hypothesized that incentives moderate the relationship between diversification strategy and long term discretionary investment, including research and development and capital expenditures. Compensation which is predicated on accounting performance will contribute to efficiency in more mature firms, such as those pursuing unrelated and related linked diversification strategies, which have potential agency costs associated with free cash flow. Alternatively, compensation contracts which reward executives on the basis of stock market performance will likely contribute to efficiency in organizations such as related-constrained, dominant, and single business firms, which tend to pursue long-term investment strategies rather than near-term profits. Data were collected from a stratified random sample of firms following five diversification strategies. Analysis using Ordinary Least Squares regression found support for the notion that incentive plans moderate the relationship between corporate strategy and decision outcomes. However, no effect was observed for accounting-oriented incentives. Market-based incentives were found to contribute to short-term efficiency and intermediate-term investments. |
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| Item Description: | Vita. "Major Subject: Management". |
| Physical Description: | viii, 101 leaves ; 28 cm. Issued also on microfiche from University Microfilms Inc. |
| Bibliography: | Includes bibliographical references: pages 90-100. |