Seminar (Dept. of Accounting)

Title：Unequal Stakes: How Top Management Team Incentive Dispersion Shapes Investment Decisions

Speaker：Hangsoo Kyung, Assistan Professor, The Hong Kong Polytechnic University

Time：10:00-11:30, December 16th, 2024 (Monday)

Venue：Room 1008, Mingde Business Building

Language：Chinese & English

ABSTRACT:

We investigate the relation between the dispersion in compensation incentives among top management team members and a firms’ investment-q sensitivity. We begin by developing a model that examines the relation between effort complementarity and investment-q sensitivity. Our model suggests that greater dispersion in incentives can hinder the coordination and effort provision of management teams, resulting in reduced investment efficiency. We empirically test the implication of our model and find that a higher degree of dispersion in pay-performance sensitivities lead to a decrease in investment-q sensitivity. This effect is more pronounced in financially constrained firms but less pronounced in firms with stronger coordination incentives. Furthermore, we find that the reduction in investments is particularly significant for intangible assets, which play a crucial role in firm innovation. Our results suggest that when compensation incentives across members of the top management team are more dispersed, firm investment efficiency and innovation suffer.