Executive bonus compensation and financial leverage: Do growth and executive ownership matter?

Adu-Ameyaw, Emmanuel; Danso, Albert; Acheampong, Samuel; Akwei, Cynthia

Abstract

Purpose: This study aims to examine the impact of executive bonus compensation on a firm’s financial leverage policy and the extent to which this compensation–leverage relation is moderated by firm growth and executive ownership. Design/methodology/approach: Using data from 213 non-financial and non-utility UK FTSE 350 firms for the period 2007–2015, generating a total of 1,784 firm-year observations, panel econometric methods are used to test the model. Findings: Drawing insights from agency theoretic view, this paper uncovers that managerial cash bonus compensation is negatively and significantly related to financial leverage. However, stock bonus compensation has a positive and significant impact on leverage. This study also observes that compensation–leverage is moderated by both firm growth and executive ownership. The results remain robust to alternative econometric models. Originality/value: While this paper builds on the risk-motivated argument of executive bonus compensation literature, it is the first – to the best of the knowledge – to explore the bonus compensation-corporate financial leverage and, particularly, examine the extent to which firm growth and corporate executive ownership matter in this relationship.

• Journal Article Type: Article
• Acceptance Date: Feb 26, 2021
• Online Publication Date: May 19, 2021
• Publication Date: Aug 3, 2021
• Deposit Date: Apr 19, 2021
• Publicly Available Date: Jun 20, 2021
• Journal: International Journal of Accounting and Information Management
• Print ISSN: 1834-7649
• Electronic ISSN: 1758-9037
• Publisher: Emerald
• Peer Reviewed: Peer Reviewed
• Volume: 29
• Issue: 3
• Pages: 392-409
• DOI: https://doi.org/10.1108/IJAIM-09-2020-0141
• Public URL: https://uwe-repository.worktribe.com/output/7268729