Sung S Kwon
Rutgers, The State University of New Jersey
Jennifer Yin
Rutgers, The State University of New Jersey
Abstract: Executive Compensation, Investment Opportunities and Earnings Management: High-Tech versus Low-Tech Firms
Abstract This paper examines systematic differences in compensation policies, the sensitivity of compensation to market and accounting performance, and the sensitivity of compensation to the degree of earnings management, in the presence of investment opportunities between high-tech and low-tech firms. We find that industry participation, i.e. high-tech versus low-tech, has incremental contracting value beyond investment opportunity set (IOS) in determining executive compensation. After IOS is controlled for, we find: (1) high-tech firms generally pay higher level of total compensation than low-tech firms; (2) high-tech firms grant less cash salaries and bonuses, but more stock options when rewarding CEOs; (3) the association between compensation and stock return is higher for high-tech firms, and there is no difference in the association between compensation and accounting return in both groups; and (4) the association between compensation and discretionary accruals is higher for high-tech firms than for low-tech firms. Our results are in line with predictions of prior literature concerning contracting hypotheses stemming from the agency theory.
Keywords: Executive compensation; performance measures; earnings management; high-tech; low-tech
Data Availability: The data used in this study are publicly available from the sources identified in the text.
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