Maines et al. (2002) asserted that investors can perceive nonfinancial performance measures because stock prices appear to reflect these measures. With regard to the research on the nonfinancial infonnation in valuation, this study mainly examines the role of compensation on the relationship between nonfinancial performance measures and stock prices, especially for firms in
124 Compensation. Life Cyc缸•and the Va/ue Re/eνance ofPe吃formanceMel1sures
Table 9
Partial Empirical Results C)f Firms among Eight Sub-industries
MVE戶口+ß1BVi+戶2N1汁恥COMi+仇 QUALITYi+恥 PATENTi+仇 RMSi+ ß7 CYCLEi +仇INli* COM + ß82QUALITYi *COM +ß8J PATENTi *COM+戶84
RMSi * COM+ß85 CYCLE
,
* COM +島(1)computer and telecommunication electronic electronic information other
Industries semiconductor
peripheral devices photodiode
ioternet compooeots channel service electronic
iodust控
Variables Estimated Estimated Estimated Estimated Estimated Estimated Estimated Estimated
coefficient coefficient coefficient coefficient coefficient coefficient coefficient coefficient
。-statistic) (t-statistic) (t-statis討~ (t-statistic) (t-statistic) (t-statis的~ (t-statistic) (t-statistic)
NI'COM 3.933 1.052 6.089 0.925 2.047 2.224 3.900 3.941
(3.104" η (1.361) (4.074*' 竹 (1.403) (1.814') (2.190'.) (4.564"η (3.274'*η
QUALITY'COM -0.258 0.051 0.020 -0.001 。 108 0.098 0.097 。 136
(-1.165) (2.118") (0.199) (-0.003) (1.332) (0.955) (0.595) (1.500)
PATENT'COM -0.006 0.001 0.021 0.015 -0.002 -0.022 0.110 0.004
(-0.736) (2.133") (1.656') (0.924) (-0.461) (-0.424) (2.385") (0.365)
RMS'COM 40.670 46.602 17.721 10.048 -1.982 0.587 -0.645 10.214
(3.535"') (11.276" .) (2.935"') (2.028") (-1.222) (0.468) (-0.404) (1.978")
CYCLE*COM 0.002 0.002 -0.001 0.001 0.001 0.002 0.005 0.002
(0.766) (0.844) (-0.487) (0.515) (1.096) (1.551) (1.284) (0.95而)
Adj. R-squared 。 434 0.525 。.399 。 407 0
.3
28 0.396 0.926 。 469F-statistic 15.782 32.419 11.291 9.761 12.813 6.835 52
.3
92 13.371observations 232 314 187 154 291 108 50 169
a: " " ,
,..
Statistically significant at the 10%,5%, and 1% levels, respectively (two-tailed)b: MVE=market value of equity (hundred milbon dollars)rrAt-l (thousand dollars) ; BV= the book value of equity (thousand dollars)fT At-l; NI= earnings (thousand dollars) rr A 1-1; COM= Top manager's annual cash salary and bonus (thousand dollars)rr A 叫;QUALπY=the numbers of quality aw缸"dsand ISO grant waπants; PATENT=
number of patents; RMS=firτn's market share; CYCLE=cyclc time; N1 'COM=interaction term for Nl and COM; QUALITY 'COM=interaction term for QUALITY and COM; PATENT'COM=interaction term for PATENT and COM; RMS 'COM=interaction term for RMS and COM; CYCLE'COM=interaction term for CYCLE and COM
Chiao Da Management ReνiewVol. 31 No. 1,2011 125
different life cyc1e stages. The empirical results of this study show that a significant portion of firm value can be explained by the moderating effect of compensation across various performance measures. Compensation plan have proven to be effective devices to motivate manager's performance (Schiehll and Morissette, 2000). Our findings also support that assertion that firm value increases as investors' perceived greater furn performance improvement at the compensation level. This implication indicates that top manager's compensation improves the relationship between firm value and performance measures. These evidences further suggest that firms that reward managers based on financial performance measures alone cannot recognize th;:: complete benefits of future growth opportunities. This is especially true for firms in the growth stage
Our results have important implications for firm's management and decision planning. In the informational electronic industry, which is the most important and competitive industry in Taiwan, our findings suggest that firms can succeed by means of appropriate selection of performance measures, such as earnings (NI), market shares (RMS), product quality (QUALlTY), innovation productivity (P ATENT), and operation efficiency (CYCLE). In particul缸， firms will benefit more by putting emphasis on nonfinancial pcrformance measures and rewarding top manager for improvement of these performllllce measures in the early lifecyc1e stages and the market will reflect this in t!J.e stock prices.
The results of this study support that the moderating effect of compensation on performance measures can convey more information to help shareholders evaluate the value of firms, even in different lifecyc1e stages. The results of this study contribute to the value relevance literature and we believe that adding such information to a valuation model will provide investors with a way to appraise firm value more appropriately and to decide stock price.
The limitations of this study inc1ude: (1) there are a lot of difficulties of obtaining ac以Irate and detailed data on exactly how firms measure performance and the compensation schemes employed by the sample firms; (2) the public data of the Taiwan's managers' compensation has been condensed to one number (Hung and Wang, 2008), which does not separately each manager's listed cash-based and stock-based figures since year 2007. Thus,
126 Compensation, L(戶 Cycle，and the 均 /ueRe/evance 01 Pe吃formanceMeasures
understanding conceming more details about cash compensation data and cannot extend our research period to year 2009; (3) the analysis is restricted to firms in the information electronic industry and this may diminish generalization that apply to other industries; (4) we use archival measures available to proxy for nonfinancial performance measures, which are supported in the related studies.
However, there is obviously unwanted noise. Further research may use more precise nonfinancial performance measures employed by the compensation plans of firms to re-exarnÎne the conc1usion.
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