The Effect of Firm Life Cycle on the Sensitivity of Firm Risk (Vega Effect) in Executive Compensation Structure

• Main Authors: Yi-chen Chu, 祝懿箴
• Other Authors: Yue-Ciao Lin
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/41209299214732322386

碩士 === 國立中正大學 === 會計與資訊科技研究所 === 97 === The purpose of this study is to examine whether the effect of firm risk on executive compensation (or “vega” effect), will be dependent on the life cycle stage of firms (namely, growth stage, mature stage, and decline stage). This study based on 1,812 listed companies in Taiwan during 2005-2007, we collected financial and executive compensation data from TEJ (Taiwan Economics Journal) database. Our primary empirical results are as follows： 1.When firms on growth (decline) stage, the executive compensation will include positive (negative) vega effect; while when firms on mature stage, the executive compensation will not include vega effect. 2.When firms on growth (decline) stage, the risk of this year will positively (negatively) significant affect the executive compensation, if these firms’ risk of last year are smaller (greater) than the industry’s average risk; in the meantime, when firms on mature stage, the risk of this year will not affect the executive compensation, regardless these firms’ risk of last year are smaller or greater than the industry’s average risk. To sum up, since firms in different life cycle stage have different risk preference, stockholders’ will through provide managers variable compensation to align the goal congruence of each other.