Impact of CEO pensions on value relevance of R&D expenditures
-
DOIhttp://dx.doi.org/10.21511/ppm.16(4).2018.19
-
Article InfoVolume 16 2018, Issue #4, pp. 224-234
- 860 Views
-
116 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Since CEO pension is unsecured and unfunded liabilities of the firm, it induces CEOs to have long-term incentives towards minimizing their firms’ default risk. Motivated by the unique characteristics of CEO pension, this study investigates the impact of CEO pension on the value relevance of R&D expenditures. Using Tobin’s Q ratio to measure firm value, the empirical results show that CEO pension intensifies the relation between R&D expenditures and Tobin’s Q ratio. The results remain robust in two-stage least square and propensity score matching regression analysis to address the endogeneity issues in the relation between CEO pension and the value relevance of R&D expenditures. In addition, the regression results with ROA and F-score as the alternative dependent variables also confirm that CEO pension intensifies the relation between R&D expenditures and firm value.
- Keywords
-
JEL Classification (Paper profile tab)O30; M41
-
References35
-
Tables7
-
Figures0
-
- Table 1. Summary statistics
- Table 2. Correlations
- Table 3. Regression of Tobin’s (1969) Q ratio on R&D expenditures and CEO pensions
- Table 4. Addressing endogeneity
- Table 5. Robustness test
- Table 6. CEO turnover
- Table 7. CEO gender
-
- Anantharaman, D., Fang, V. W., & Gong, G. (2013). Inside debt and the design of corporate debt contracts. Management Science, 60(5), 1260-1280.
- Bebchuk, L. A., & Jackson Jr, R. J. (2005). Executive pensions (No. w11907). National Bureau of Economic Research.
- Bhagat, S., & Welch, I. (1995). Corporate research & development investments international comparisons. Journal of Accounting and Economics, 19(2-3), 443-470.
- Brockman, P., Martin, X., & Unlu, E. (2010). Executive compensation and the maturity structure of corporate debt. The Journal of Finance, 65(3), 1123-1161.
- Cassell, C. A., Huang, S. X., Sanchez, J. M., & Stuart, M. D. (2012). Seeking safety: The relation between CEO inside debt holdings and the riskiness of firm investment and financial policies. Journal of Financial Economics, 103(3), 588-610.
- Chi, S., Huang, S. X., & Sanchez, J. M. (2017). CEO inside debt incentives and corporate tax sheltering. Journal of Accounting Research, 55(4), 837-876.
- Chung, C. Y., Liu, C., Wang, K., & Zykaj, B. B. (2015). Institutional monitoring: Evidence from the F‐score. Journal of Business Finance & Accounting, 42(7-8), 885-914.
- Coles, J. L., Daniel, N. D., & Naveen, L. (2006). Managerial incentives and risk-taking. Journal of financial Economics, 79(2), 431-468.
- Edmans, A., & Liu, Q. (2010). Inside debt. Review of Finance, 15(1), 75-102.
- Gustman, A. L., Mitchell, O. S., & Steinmeier, T. L. (1994). The role of pensions in the labor market: A survey of the literature. ILR Review, 47(3), 417-438.
- Hanlon, M., Rajgopal, S., & Shevlin, T. (2003). Are executive stock options associated with future earnings? Journal of Accounting and Economics, 36(1- 3), 3-43.
- Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305- 360.
- Jiang, L. A., Waller, D. S., & Cai, S. (2013). Does ownership type matter for innovation? Evidence from China. Journal of Business Research, 66(12), 2473- 2478.
- Kalyta, P. (2009). Accounting discretion, horizon problem, and CEO retirement benefits. The Accounting Review, 84(5), 1553- 1573.
- Lambert, R. A., & Larcker, D. F. (1987). An analysis of the use of accounting and market measures of performance in executive compensation contracts. Journal of Accounting research, 25, 85-125.
- Low, A. (2009). Managerial risk-taking behavior and equity-based compensation. Journal of Financial Economics, 92(3), 470-490.
- McConnell, J. J., & Servaes, H. (1990). Additional evidence on equity ownership and corporate value. Journal of Financial economics, 27(2), 595-612.
- Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market valuation: An empirical analysis. Journal of financial economics, 20, 293-315.
- Murphy, K. J. (1985). Corporate performance and managerial remuneration: An empirical analysis. Journal of accounting and economics, 7(1-3), 11-42.
- Myers, S. C. (1977). Determinants of corporate borrowing. Journal of financial economics, 5(2), 147-175.
- Nees, A. T. (2010). Who’s The Boss? Unmasking Oversight Liability Within The Corporate Power Puzzle”. Delaware Journal of Corporate Law, 35, 199.
- Opler, T. C., & Titman, S. (1994). Financial distress and corporate performance. The Journal of Finance, 49(3), 1015-1040.
- Phan, H. V. (2014). Inside debt and mergers and acquisitions. Journal of Financial and Quantitative Analysis, 49(5- 6), 1365-1401.
- Piotroski, J. D. (2000). Value investing: The use of historical financial statement information to separate winners from losers. Journal of Accounting Research, 1-41.
- Prabhala, N., & Li, K. (2007). Self-selection models in corporate finance. Handbook of corporate finance: Empirical corporate finance, 1, 37.
- Rosenbaum, P. R., & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41-55.
- Rosenbusch, N., Brinckmann, J., & Bausch, A. (2011). Is innovation always beneficial? A meta-analysis of the relationship between innovation and performance in SMEs. Journal of business Venturing, 26(4), 441-457.
- Ruiqi, W., Wang, F., Xu, L., & Yuan, C. (2017). R&D expenditures, ultimate ownership and future performance: Evidence from China. Journal of Business Research, 71, 47-54.
- Shehata, M. (1991). Self-selection bias and the economic consequences of accounting regulation: An application of two-stage switching regression to SFAS No. 2. Accounting Review, 768-787.
- Shipman, J. E., Swanquist, Q. T., & Whited, R. L. (2016). Propensity score matching in accounting research. The Accounting Review, 92(1), 213-244.
- Sundaram, R. K., & Yermack, D. L. (2007). Pay me later: Inside debt and its role in managerial compensation. The Journal of Finance, 62(4), 1551-1588.
- Tobin, J. (1969). A general equilibrium approach to monetary theory. Journal of money, credit and banking, 1(1), 15-29.
- Wang, C., Xie, F., & Xin, X. (2017). CEO Inside Debt and Accounting Conservatism. Contemporary Accounting Research.
- Wei, C., & Yermack, D. (2011). Investor reactions to CEOs’ inside debt incentives. The Review of Financial Studies, 24(11), 3813- 3840.
- Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of financial economics, 40(2), 185-211.