How Do Compensation Incentives Affect Managerial Decisions? Evidence from Internal Capital Markets


  • Li Yong Mercy College School of Business



Executive compensation, internal capital markets


This paper examines how incentives from the level of CEO compensation affect firms' internal capital allocation decisions. I 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.

Author Biography

Li Yong, Mercy College School of Business

Li Yong received her Ph.D. in finance from the University of Texas at Austin and has taught at the University of Texas at Arlington.  Her research interests include: closed-end funds, mutual funds, and the internal capital market.  She has published in the Journal of Finance and presented her work at major national conferences including the American Finance Association and the Financial Management Association meetings.  She joined Mercy College in 2012 and has been teaching economics and finance courses at the School of Business.


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