Two essays on performance measure choice and investment decisions
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Title
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Two essays on performance measure choice and investment decisions
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Identifier
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d_2009_2013:86fbd3a9f32f:11473
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identifier
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11848
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Creator
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Zhang, Bo,
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Contributor
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Carol Marquardt
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Date
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2012
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Language
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English
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Publisher
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City University of New York.
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Subject
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Accounting | Management
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Abstract
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This dissertation is composed with two essays. The first essay examines whether employing sales revenue as a performance measure in CEO annual bonus contracts affects R&D expenditures. Using hand-collected data from companies' proxy statements, I find that CEOs whose annual incentive compensation is explicitly tied to revenue performance are less likely to cut R&D expenditures. In addition, the results suggest that managers who have an incentive to avoid reporting an accounting loss by cutting R&D are less likely to do so when their annual bonus contracts are tied to revenue performance. The findings are robust to controlling for endogeneity in compensation contract design and investment decisions. The study provides new evidence on the role of performance measures on R&D expenditures. Specifically, the results suggest revenue-contingent annual incentive contracts are a potential mechanism that dissuades opportunistic reduction in R&D expenditures. In addition, the findings demonstrate the importance of the role of performance measures in directing corporate investment decisions.;In the second essay, I explore whether employing sales revenue as a performance measure in CEO annual bonus contracts affects merger decisions. Using hand-collected data from companies' proxy statements, I find that CEOs whose annual incentive compensation is explicitly tied to revenue performance are more likely to pursue acquisition activities. The association between revenue-contingent bonus plans and merger decisions is stronger for conglomerate and horizontal mergers than for vertical mergers. In addition, results suggest that acquirers with revenue-contingent bonus plans do not overbid, paying significantly smaller acquisition premiums. I also find that investors do not respond differently to bid announcements of firms with revenue-contingent bonus plans. The findings are robust to controlling for endogeneity in compensation contract design. The study provides new evidence on the impact of performance measures on firms' investment decisions..
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Type
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dissertation
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Source
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2009_2013.csv
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degree
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Ph.D.
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Program
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Business
