Is Management Compensation Forward Looking in Family Firms? : The Association between Corporate Future Performance and Current Management Compensation in Korean Family Firms

다국어 초록 (Multilingual Abstract)

This study investigates the association between corporate future performance and current management compensation in family firms compared with non-family firms. The agency cost between owners and managers in family firms is relatively small because the characteristic of unified family ownership and management in family firm creates no or less information asymmetry problem. Since owners can monitor management’s behavior effectively, the agency costs can be easily mitigated by close monitoring on owner-management in the family firm. Furthermore, family firms are more largely motivated for long-term decision making in order to bequeath the business to next generations in their family. Therefore, if family firm managers make more long-term perspective on investment decisions, and their in-process activities can be effectively observed, management’s current compensation can possibly reflect their long-term investment decisions even before the realization of actual outcomes. This paper further examines the effect of high growth opportunities on the association between management’s current compensation and future performance expecting that it may influence the difference between family firms and non-family firms. The results are consistent with our expectation that there is positive and significant association between corporate future performance and current management compensation in family firms. It implies that the compensation determinants can be different by the type of firms; family or non-family firms. As for family firms with high growth opportunities, there is weaker but still significant association because the effect of high growth opportunities subdued by the unique characteristics in family firm’s corporate governance.

목차 (Table of Contents)

• 1. Introduction 2. Theoretical Background and Hypotheses Development 3. Research Design and Data 4. Empirical Results 5. Conclusion REFERENCES