How Do Executives Benefit From Investment Efficiency? Investigating The Use of Accounting Performance-Based Pay: Evidence From Indonesia
Background: Investment efficiency is expected to mitigate agency problems in investment decision-making. However, the role of investment efficiency in accounting performance-based pay is less well-known. Purpose: This study investigates the moderating effects of investment efficiency on the nexus b...
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| Format: | Article |
| Language: | Indonesian |
| Published: |
Bogor Agricultural University
2024-09-01
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| Series: | Jurnal Aplikasi Bisnis dan Manajemen |
| Online Access: | https://journal.ipb.ac.id/index.php/jabm/article/view/53135 |
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| _version_ | 1825206612492550144 |
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| author | Aang Kunaifi I Made Narsa Ardianto Ardianto |
| author_facet | Aang Kunaifi I Made Narsa Ardianto Ardianto |
| author_sort | Aang Kunaifi |
| collection | DOAJ |
| description | Background: Investment efficiency is expected to mitigate agency problems in investment decision-making. However, the role of investment efficiency in accounting performance-based pay is less well-known.
Purpose: This study investigates the moderating effects of investment efficiency on the nexus between accounting performance and executive compensation, which is termed accounting performance-based pay. We predict that executives at firms with more investment efficiency will receive a higher accounting performance-based pay.
Design/methodology/approach: This study uses a sample comprising 888 firm-year observations of non-financial companies listed on the Indonesian Stock Exchange (IDX) from 2010 to 2018.
Finding/result: Using the level of investment efficiency and executive cash compensation as measures, we find that executive accounting performance-based pay significantly increases in investment-efficient firms. We also find that the association between investment efficiency and accounting pay-for-performance sensitivity is consistent with a robustness check using a different measure of investment efficiency.
Conclusion: Our findings suggest that Indonesian firms generally incorporate relative investment efficiency when designing executive compensation contracts.
Originality/value (state of the art): This study fills an important gap in the literature on the role of investment efficiency and the use of accounting performance-based pay to address empirical evidence of the incentive alignment effect of strategic decision-making.
Keywords: accounting performance-based pay, efficient use of resources, executive compensation, investment, investment efficiency |
| format | Article |
| id | doaj-art-2115eaa6a05e4ec5b229fc5ba26eff8d |
| institution | Kabale University |
| issn | 2528-5149 2460-7819 |
| language | Indonesian |
| publishDate | 2024-09-01 |
| publisher | Bogor Agricultural University |
| record_format | Article |
| series | Jurnal Aplikasi Bisnis dan Manajemen |
| spelling | doaj-art-2115eaa6a05e4ec5b229fc5ba26eff8d2025-02-07T08:01:38ZindBogor Agricultural UniversityJurnal Aplikasi Bisnis dan Manajemen2528-51492460-78192024-09-0110373773710.17358/jabm.10.3.73753135How Do Executives Benefit From Investment Efficiency? Investigating The Use of Accounting Performance-Based Pay: Evidence From IndonesiaAang Kunaifi0I Made Narsa1Ardianto Ardianto2Department of Accounting, Faculty of Economics and Business, Universitas Airlangga, Jl. Airlangga No. 4, Airlangga, Gubeng, Surabaya, East Java 60286, IndonesiaDepartment of Accounting, Faculty of Economics and Business, Universitas Airlangga, Jl. Airlangga No. 4, Airlangga, Gubeng, Surabaya, East Java 60286, IndonesiaDepartment of Accounting, Faculty of Economics and Business, Universitas Airlangga, Jl. Airlangga No. 4, Airlangga, Gubeng, Surabaya, East Java 60286, IndonesiaBackground: Investment efficiency is expected to mitigate agency problems in investment decision-making. However, the role of investment efficiency in accounting performance-based pay is less well-known. Purpose: This study investigates the moderating effects of investment efficiency on the nexus between accounting performance and executive compensation, which is termed accounting performance-based pay. We predict that executives at firms with more investment efficiency will receive a higher accounting performance-based pay. Design/methodology/approach: This study uses a sample comprising 888 firm-year observations of non-financial companies listed on the Indonesian Stock Exchange (IDX) from 2010 to 2018. Finding/result: Using the level of investment efficiency and executive cash compensation as measures, we find that executive accounting performance-based pay significantly increases in investment-efficient firms. We also find that the association between investment efficiency and accounting pay-for-performance sensitivity is consistent with a robustness check using a different measure of investment efficiency. Conclusion: Our findings suggest that Indonesian firms generally incorporate relative investment efficiency when designing executive compensation contracts. Originality/value (state of the art): This study fills an important gap in the literature on the role of investment efficiency and the use of accounting performance-based pay to address empirical evidence of the incentive alignment effect of strategic decision-making. Keywords: accounting performance-based pay, efficient use of resources, executive compensation, investment, investment efficiencyhttps://journal.ipb.ac.id/index.php/jabm/article/view/53135 |
| spellingShingle | Aang Kunaifi I Made Narsa Ardianto Ardianto How Do Executives Benefit From Investment Efficiency? Investigating The Use of Accounting Performance-Based Pay: Evidence From Indonesia Jurnal Aplikasi Bisnis dan Manajemen |
| title | How Do Executives Benefit From Investment Efficiency? Investigating The Use of Accounting Performance-Based Pay: Evidence From Indonesia |
| title_full | How Do Executives Benefit From Investment Efficiency? Investigating The Use of Accounting Performance-Based Pay: Evidence From Indonesia |
| title_fullStr | How Do Executives Benefit From Investment Efficiency? Investigating The Use of Accounting Performance-Based Pay: Evidence From Indonesia |
| title_full_unstemmed | How Do Executives Benefit From Investment Efficiency? Investigating The Use of Accounting Performance-Based Pay: Evidence From Indonesia |
| title_short | How Do Executives Benefit From Investment Efficiency? Investigating The Use of Accounting Performance-Based Pay: Evidence From Indonesia |
| title_sort | how do executives benefit from investment efficiency investigating the use of accounting performance based pay evidence from indonesia |
| url | https://journal.ipb.ac.id/index.php/jabm/article/view/53135 |
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