Moderators of the Relationship Between Director Stock‐Based Compensation and Firm Performance

James J. Cordeiro · Rajaram Veliyath · Jane B. Romal

35 citations0/0 files storedCorporate Governance An International Review

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Corporate Finance and Governance Auditing, Earnings Management, Governance Accounting and Organizational Management

Abstract

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.

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References

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