How Do Compensation Incentives Affect Managerial Decisions? Evidence from Internal Capital Markets
AbstractThis paper examines how incentives from the level of CEO compensation affect firms' internal capital allocation decisions.┬áI first document that multi-segment firms invest more in segments associated with higher levels of executive compensation, and that the effect is more pronounced in restructuring firms that have undergone changes in their segments. Furthermore, I present evidence that following restructuring activities, CEOs enjoy both a higher level of compensation and a faster growth rate in that compensation.
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