The Relation between Employee Profit-Sharing and Corporate Governance and the Impact on Firm Performance
Date Issued
2008
Date
2008
Author(s)
Chu, Hsin-Yi
Abstract
The thesis investigates the employee bonus programs can be an effective incentive compensation scheme. But if the managers want to benefit themselves and expropriate other stakeholders from issuing too much bonus, the incentive scheme will not improve future firm performance. This study divides firms into two groups (issue too much bonus and issue less bonus) and examines the relation between employee bonus and subsequent firm performance respectively. I also test whether there are differences in corporate governance between the two groups. The empirical results indicate that the controlling shareholder’s cash flow right and professional investors does influence the adoption of employee bonus schemes. The firm which is in bad corporate governance tends to issue too much bonus and the incentive scheme can not create better subsequent firm performance. When the firm issues too much bonus, investors may overreact and the low stock price result into a positive abnormal return in the following year. In the group which firms do not issue too much bonus, the dilution effect is not significant and cash bonus have a significant positive inventive effect. The result suggests that in order to improve firm performance, managers should consider the circumstance the firm face and should not distribute excess bonus.
Subjects
Employee Profit-Sharing
Corporate Governance
Firm Performance
Type
thesis
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