Executive Pay and Market Value Sensitivity

  • Feng-Li Lin Chaoyang University of Technology, Department of Accounting, Taichung, Taiwan

Abstract

Executive pay relative to that of average workers has risen dramatically worldwide. Such a high level of executive pay raises the question of whether a steep rise in executive pay affects firm value. This study examined the relationship between executive pay and firm value. A panel smooth transition regression model is adopted to determine an optimal level of executive pay that maximizes firm value for a sample of 512 Taiwanese-listed firms over the period 2006-2011. The finding is that when the ratio of executive pay to net income after tax exceeds 2.71%, the firm value increases. The results suggest a correlation between large executive ownership (corresponding to high executive pay) and both increased operational efficiencies and firm value. These findings may be useful when contemplating executive compensation policy.


Key words: Executive ownership, Firm value, Executive pay, Optimal level.
JEL: G30, G32, G35, G38.

How to Cite
Lin F. (2016). Executive Pay and Market Value Sensitivity. Panoeconomicus, 63(4), 411-424. doi:10.2298/PAN1604411L
Section
Original scientific paper