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Moderators of the Relationship Between Director Stock‐Based Compensation and Firm Performance
Author(s) -
Cordeiro James J.,
Veliyath Rajaram,
Romal Jane B.
Publication year - 2007
Publication title -
corporate governance: an international review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.866
H-Index - 85
eISSN - 1467-8683
pISSN - 0964-8410
DOI - 10.1111/j.1467-8683.2007.00652.x
Subject(s) - principal–agent problem , stock (firearms) , business , structuring , accounting , compensation (psychology) , executive compensation , stock options , sample (material) , positive relationship , monetary economics , finance , economics , corporate governance , psychology , social psychology , engineering , mechanical engineering , chemistry , chromatography
Research on the efficacy of stock‐based compensation for outside directors has documented a weak or non‐existent relationship with firm performance. Other variables also influence the relationships between these two constructs. Consistent with agency theory, we show, for a sample of 450 Standard & Poor 500 firms over the 1995–97 period that the use of director stock options and grants ratios was more strongly associated with positive performance in firms with (a) higher investment opportunities, and (b) weaker external monitoring. These findings have implications for compensation committees in the structuring of director compensation.