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Chiao Da Managemenf Reνlew 的/.31No. 1.2011

pp.93-!33

高階經理人薪酬、生命週期與績效指

標之價值攸關性

Compensation,

Life Cycle,

and

the

Value

Relevance of

Performance Measures

張育琳 1 Yu-Lin Chang 嶺采科技大學會計資訊系

Department of Accounting and Information Technology, Ling Tung University

傅鍾仁 Chung-JenFu

雲林科技大學管理研究所

Department and Graduate lnstitute of Accounting, National Yunlin University of Science and Technology

發IJi妥儒 Chun-JuLiu 東海大學會計學系

Department of Accounting, Tunghai University

摘要:代理理論認為提供高階經理人誘因報償具有強化績效指標的作用,有

利於創造公司價值,故高階經理人薪酬及公司績效指標應是投資人評估公司

價值的重要資訊。基於Ittnerand Larcker (2001)認為評估管理績效與公司評價

的資訊不盡然相同的質疑,且在價值攸關性的系列文獻中,尚無充分的研究 足以說明薪酬所扮演的角色 。 故本文研究目的乃強調公司價值、績效指標與 高階經理人薪酬三者之間環環相扣的關餘,以我國 1997 至 2006 年之資訊電 子業為研究對象,驗證高階經理人薪酬對於績效指標與公司價值的關述性之 影響。實證結果顯示:1.高階經理人薪酬對於財務績效指標(盈餘)和非財務績 效指標(品質績效指標、顧客滿意度績效指標與創新績效指標)與公司價值之 間的關連性具正向影響; 2.尤其是相對於成熟期與衰退期公司,成長期公司 之高階經理人薪酬對於非財務績效指標與公司價值之間關連性具有顯著正向 影響 。

I Corresponding author: Department of Accounting and Information Technology, Ling Tung

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94 Compensation, Life Cyc/e, and the 均/ueRelevance of Pe,:formance Measures

關鍵字:高階經理人薪酬;生命週期;非財務績效指標;價值攸關性

Abstract : ln Iight of agency theory, this study examines the effect of contracting incentives on the value relevance of five performance measures

,

inc1uding

earτüngs, product quality, market shares, patents and cyc1etime. We apply and extend the Ohlson (1995) valuation model based on a sample from periods 1997 to 2006 in the information 巴lectronic indus甘yin Taiwan to examine the role of

top manag缸's compensation in value-relevance research. Our findings indicate that top manager's compensation positively moderates the association between

firm value and performance measures. We further find that compensation can

enhance the value relevance of nonfinancial performance measures better for firms in the growth stage than firms in the mature and dec1ine stages. This study contributes new insight going beyond the relations observed between top

manager's compensation and the value relevance of nonfinancial performance

measures.

Keywords : Top manager's compensation; Life cyc1e; Nonfinancial performance measures; Value relevance

1.

Introduction

A sizable literature suggests that both financial and nonfinancial

performance measures can provide value-relevant information for investors (Amir

and Lev, 1996; lttner and Larcker, 1998a; Hughes, 2000; Hand, 2005).

Furthermore

,

agency theory suggests the performance measures inc1uded in

compensation contracts should be Iinked with management effort and actions. The

evidence of extant studies indicates that laying emphasis on multiple measures

will improve the performance of firms and further increase frrm values (Keati嗯,

1997; Said, HassabElnaby and W悶, 2003; Ittner, Larcker and Randall, 2003).

However, this does not imply that the performance measures which are inc1uded

in compensation contracts should be the one with the highest association with

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Chiao Da Managemenl Review 均1. 31No. 1,2011 95

role of top manager's compensation plays as investors use the performance measures to evaluate firms and make investments and related decisions.2

Holthausen and Watts (2001) indicate the most highly associated fmancial measures are not necessarily the most precise measures of firm value. Recently

,

increasing emphasis on the use of the combination of fmancial and nonfinancial performance measures has been proved to increase firm values (lttner, Larcker and Rajan

,

1997; Keating

,

1997; Ittner and Larcker

,

1998a

,

2001; Said et al.

,

2003). One of the primary motivations to using nonfinancial performance measures is the be\ief that only the integration of nonfinancial measures in performance measurement system al\ows managers to realize the relations among diverse strategic objectives

,

and efficiently al\ocate resources that promote value creation (Kaplan and Norton

,

1996; lttner and Larcker

,

200 1; Said et al.

,

2003). As a result

,

nonfinancial performance measures are not only related to future financial performance (Ittner and Larcker

,

1998a; Behn and Riley

,

1999; Banker

,

Potter

,

and Srinivasan

,

2000)

,

but are also highly relevant in evaluati月 firm equity value (Amir and Lev

,

1996; Maines et al.

,

2002; Said

,

et al.

,

2003).

Furthermore, incentive compensation contracts can encourage congruence between the actions desired by the principal and the actions taken by the agent (Holmstrom

,

1979; Banker and Datar

,

1989; Feltham and X時, 1994; Lambert

,

2001). Evidence in several studies indicates that performance-based compensation con世acts give rise to performance improvements (Banker

,

Lee

,

Potter and Srinivasan

,

2000) and thereby maximizes shareholders' value. However

,

Ittner et

al. (2003) found that merely integrating the right performance measures (value drivers) in the compensation contract does not necessarily create more benefits to the firm. Thus, without a deep understanding of the performance measures and their interaction with compensation, managers wil\ not al\ocate resources effectively and improve firm performance. Furthermore

,

stockholders may not evaluate the firm value appropriately.

Studies related to compensation confirm that investors conditionally explain nonfinancial information by considering firm-specifics

,

industry

,

environme帥, 2 The definition of top manager in this study is CEO or president according to the disclosures of

(4)

96 Compensation, Life Cycle, and the ~包/ueRe/evance ofPerformance Measures

and regulatory factors (Maines et al.

,

2002). The choice of which perforrnance measures are relevant for firrn valuation is also context dependent, including contexts such as operating strategies

,

investment opportunity, and business environment (Ittner and Larck缸, 1998b; Maines et 瓜, 2002). This is especially 仙e for fmns in the different lifecycle stages (Schiehll and Morissette

,

2000; Hand, 2005).

From a perforrnance evaluation perspective, the impact of different Iifecycle stages is an important contingency factor affecting firrn perforrnance (Pashley and Philippatos

,

1990; Robinson and McDougall

,

2001). Because Iifecycle stages vary

across fmns, adopting appropriate nonfinancial performance measures deterroines perforrnance consequences (Said, et al.

,

2003) and inf1uences firrn value.

Therefore, the use of nonfinancial perforrnance measures should match the cbaracteristics of the firrn (Lambert and Larc跡, 1987; Said et al., 2003;

HassabElna旬, Said,and W悶, 2005).

There bave been numerous studies of tbe value relevance of nonfinancial measures; bowever, most prior researcb does not examine the effects of contracting incentives on tbe value relevance of perforrnance measures (Kallapur

and Kwan, 2004), particularly for fmns in different lifecycle stages. This study

extends the value relevance of perforrnance measures, especially the nonfinancial perforrnance measures

,

and examines the role of top manager's compensation to

gain further insight into the association with stock prices.

The empirical results ofthis study show that the top manager's compensation positively moderates the association between firrn value and perforrnance measures, such as eamings, product quality, market shares and patents. We also find that compensation can enhance the value relevance of nonfinancial perforrnance measures better for firrns in the growth stage than those in the mature and decline stages.

Further, our results confirrn prior studies which assert tbat the relationship between compensation levels and firrn perfo口nancedepends on whether eamings

are positive (Gaver and Gaver, 1998; HassabElnaby et al., 2005; Reitenga, 2006).

The resu\ts a\so show that the moderating effect of compensation on the va\ue

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Chiao Da Management ReviewVo/. 31 No. 1,2011 97

finns with positive earnings than finns with negative earnings

,

especially for

finns in the growth stage compared with finns in the mature or decline stages.

This study contributes new insight going beyond the relations observed between top manager's compensation and the value relevance of perfonnance measures. lt implies that providing such infonnation will be helpful to investors

who attempt assess the fmn stock prices more appropriately.

The remainder of this paper proceeds as follows. Section II discusses the literature review and develops the hypotheses. Section III discusses the research design and methodology

,

including the valuation model

,

definition and

measurement of variables

,

and sample selection. Section IV discusses the

empirical results. The conclusions and limitations are provided in the final

sectlOn.

2. Literature Review and Hypotheses

According to agency theory

,

the owners of the finn usually enter into

contracts with managers to monitor and reward manager's efforts to increase finn

value (Holmstrom, 1979; Keating

,

1997). Companies generally design perfonnance evaluation systems and incentive compensation contracts that encourage managers focus efforts on the various perfonnance measures, resulting in finn perfonnance improvement (Ittner and Larcker, 2001; Said et 瓜, 2003;

Bryant, Jones and Widener, 2004; Ramanan and Sridhar, 2006). Although the investors can not observe the actual valuation process, some research suggests

that stock prices can ref1ect the conversion of all available infonnation into predictions of finn's future cash f10ws given the fmn's incentive plan (Liu, Nissim and Thomas, 2002; Dutta and Reichelstein, 2005). Further, in the

accounting literature, evidence confinns a significantly positive relationship between motivation and perfonnance (Kaplan and Atkinson

,

1998; Schiehll and

Morissette

,

2000). Identifying these value drivers and their interrelations with

manager's compensation is expected to improve finn value (lttner and Larcker

,

2001). Thus

,

it can be assumed that the finn perfonnance measures play important roles in the process of value creation, compensation and motivation (Schiehll and

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98 Compensalion, Life Cyc/e, and the Va/ue Re/eν'anceofPeφrmance Measures

Morisse肘, 2000).

Financial measures are generally the key determinants for compensation and firm performance evaluation (Lambert and Larcker, 1987; Sloan

,

1993; Holthausen, Larcker and Sloan, 1995; Bushman, lndejejikian and Smith, 1996; Keating, 1997). However, financial measures cannot completely reflect the expected future consequences of current actions in a timely manner. Keating (1997) 的serts that eamings are a noisy measure of a manager's contribution to firm value. This is more Iikely to occur in firms whose values are derived more from fuωre growth opportunity than from current assets in place (Smith and Watts, 1992). Because financial measures generally reflect past performance,

nonfinancial measures usually can reflect actions that lead to future long-term performance (B叫悅 Potter, Srinivasan, 2000; Said et a止, 2003). Thus,

nonfinancial performance measures can provide incremental information about management actions beyond that conveyed by fmancial performance measures and should be included in compensation contracts (Feltham and Xie

,

1994; Hemmer, 1996; Kaplan and Norton, 1996, 2001; Said et al., 2003).

Evidence from many studies implies that nonfinancial performance measures are relevant to investors and creditors (Barth and McNichols, 1994; Maines et 此, 2002). Ittner et al. (2003) found that firms that utilize a broader set of financial and (particularly) nonfinancial performance measures have higher stock retums. lttner and Larcker (1998a) and HassabElnaby et al. (2005) have made the similar conclusions

According to diverse 0句 ectives and strategies across firms

,

types of nonfinancial performance measures may differ. In recent years

,

many firms have placed greater emphasis on nonfinancial performance measures such as on time delivery, quality, patents, market penetration, and cycle time (Hauser, Simester,

and Wemerfelt, 1994; Hemmer, 1996; Datar, Kulp and Lambert, 2001; Maines et a!., 2002). Mounting evidence supports customer satisfaction related measures,

such as on time delivery and product quality. According to this view, these are not only the leading indicators of future financial performance (Behn and Riley

,

1999; Ittner and Larck仗, 1998a, 2001; Banker, Potter, Srinivasan, 2000; Said et al., 2003), but they also have significantly positive relation with firm value (Anderson,

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ChiaoDa Manαgement ReviewVol. 31 No. 1,2011 99

Fornell and Mazvancheryl

,

2004).

Regarding another nonfinancial performance measures, Deng, Lev and Narin

(l999) examined the relationship between patents and firm stock price. Hall, Jaf伐,

and Trajtenberg (2005) found that each citation per patent is positive1y associated with an increase of about 3-4 percent in market value. Taken together

,

the resu1ts of these re1ated studies provide support for the belief that investors react direct1y

to nonfinancial performance measures (Maines et al., 2002).

In sum

,

the compensation which considers va1ue drivers can motivate

managers to exert more efforts and improve the organizations' performance (Zhou,

2000). The top manager will get more compensation as performance improves.

Focusing on the identification of the value drivers that managers are motivated by

compensation con甘actslead to increased shareholder value. Given that fmn stock

price reflects va1ue-relevant information, we expect that the market will evaluate firm value according to firm performance. Thus

,

the top manager's compensation

has positive moderating effects on this re1ationship and we develop the following hypotheses:

Hl : Top manager's compensation has a positive moderating ξffect on the

relationship be仰eenfirm value and performance measures.

Said et al. (2003) suggested that firms should connect the performance measures with the firm characteristics. Schiehll and Morissette (2000) 郎的er indicated that performance evaluation systems change dramatically throughout a

firm's 1ifecycle stages. Nonfinancial performance measures are defined as

fmn-specific information that is corre1ated with future investment opportunities

As highlighted by Myers (1977), afirm's equity value can be decomposed into

two components

,

one is assets-in-p1ace as a result of past investments, and the

other is future growth opportunities. The mix of assets-in-place and future growth

opportunities affect firms' compensation contracts (Smith and Watts, 1992; Gaver

and Gaver

,

1993; Hand

,

2005). Hand (2005) a1so found that the va1ue re1evance of nonfinancia1 performance measures decrease as firms mature over time.

From the 1ifecycle theory

,

in the start up stage

,

Anderson and Zeithama1

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100 Compensation, Life Cyc缸, andthe 均/ueRelevance ofPerformance Measures

few assets-in-place and the largest 台actionof a finn's value stems from its future growth opportunities (Hand

,

2005).

In the growth stage

,

there are fewer assets-in-place and some income is being generated (Black

,

1998). Finns need to expand their market shares and develop new products

,

patents and technology to create the future growth opportunities and generate higher income. Bushman et al. (1996) and Ittner et al. (1997) also found that compensation contracts which include nonfinancial performance measures are contingent on some factors such as future growth opportunity relative to assets-in-place. Therefore

,

fmns have to emphasize nonfinancial perfonnance measures in the growth stage.

In the mature stage

,

the finn's growth slows down substantially (Hand

,

2005). Its unrecognized growth opportunity benefit is realized in financial statements. Therefore, the firm's assets-in-place generally dominate its valuation.

However

,

to maintain the competitive advantage in the high technology market

,

in addition to financial perfonnance measures

,

firms may need to place emphasis on nonfmancial perfonnance measures.

At last

,

in the decline stage

,

the finn is either in a no-real-growth steady or liquidation situation (Smith

,

Mitchell and Surnmer

,

1985; Hand

,

2005). Financial perfonnance measures are more important

,

and firms generally put less emphasis on nonfinancial perfonnance measures in the decline stage than the earlier two lifecycle stages.3

In sum

,

fu仙reprofitable growth opportunities increase fmn value. From the evidence of prior research

,

nonfmancial performance measures are usually correlated with future growth opportunities. When a finn is in the earlier lifecycle stage

,

especially in the growth stage

,

most of its finn value is attributable to profitable expected future growth opp。此unitiesrather than assets-in-place. Thus

,

firms should reward top managers for these perfonnance measures and generally place emphasis on nonfmancial perfonnance measures in the earlier lifecycle stages. Firms will also benefit greatly 企omthe improvement of perfonnance and the market will reflect this in the stock prices. Thus, we develop the following

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Chiao Da Management ReνiewVol. 31 No. J, 201l 101

hypotheses:

H2 : The moderating 吃ffect of top manager's compensation on the

relationship between firm value and nonfinancial peφrmance

measures is more positive for firms in the earlier lifecycle stages than in the later 1.拚cyclestages.

H2a : The moderating 電加ct of top manager's compensation on the

relationship between firm value and n。可ìnancial peυormance

measures is more positive for firms in the growth stage than in the mature stage.

H2b : The moderating ~加ct of top manager's compensation on the relationship between firm value and nonfinancial performance measures is more positive for firms in the growth stage than in the decline stage.

H2c : The moderating 吃。全ct of top manager 法 compensation on the relationship between firm value and nonfinancial peφrmance

measures is more positive for firms in the mature stage than in the decline stage.

In order to express the hypotheses above more clearly, 自耳汀e 1 show the

conceptual framework ofthis study as follows.

Figurel

Conceptual Framework

Value drivers 1lIll

a--u l oa v m v 且 -E EE F a. Financial performance CEO

compensation

CEO compe叫ion

4

Firms' Iifecycle s個伊| measures

b.

Non-financial performance measures

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102 Compensat酬,LifeCyc缸,αndthe Va/ue Re/eν'ance

01

Per:formance Measures

3.

Research Design and Methodology

This section presents the sample selection

,

definition of variables and measurements and the empirical model in accordance with the hypotheses.

3.

1.

Sample Selection

The sample consists of all fmns in the electronic sector traded in the Taiwan Stock Exchange (TSE) and over the counter (OTC) exchange from 1997 to 2006.4

The companies' financial data and the equity market value data are obtained from the Financial Data of Company Profile of the Taiwan Economic Journal (TEJ) Data Bank. Annual salary and bonuses are taken 台om the directors' salary and bonus data bank of the TEJ and firrns' annual reports. The patent infonnation is from the Patent database of the Learning-Tech Corporation.5 Except for patent data, we compute and collect the other nonfinancial perfonnance measures from the disclosures of finns' annual reports. The criteria of the samples are as follows: (1) companies with insufficient data are excluded; (2) companies subject to full-delivery settlement and de-listed companies are excluded;(3) companies that do not adopt calendar years are excluded.

The procedure of our sample selection is described as follows. Out of 8,244

initial fi口n-yearobservations over the 1997-2006 periods

,

6

,

163 are missing data to measure our nonfinancial perfonnance measures (QUALITY and P ATENT)

,

280 observations are missing data for the compensation variables

,

241 observations are missing data for the financial variables, and an additional 24 observations are missing data for the lifecycle c1assification variables

,

at last

,

31 observations of extreme values data are removed. After eliminating observations due to lack of sufficient data, the sample size yields a total of 1

,

505 finn-year observations and the percentage of valid sample is about 18.26 percent of the

sample (1,505/8,244).

4 Based on the modified rule in 1995,“Guidelines Goveming the Preparation ofFinancia1 Reports by Securities Issuers", these firms are required to disc10se (op manage肉, cornpensation by mandatory regulation since 1996. Because the firms' disclosure was not so successfu1 in the initia1 stage (Lee, Lin and Chuang, 2006), the research period for 曲 isstudy is from 1997 (0 2006.

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Chiao Da Management ReνiewVol. 31 No. 1,2011 103

We focus on the information electronic industry in Taiwan for two reasons: (1) by focusing on a single industry

,

we hope to derive less noisy competitive structure variables (such as barrier-to-entry

,

and concentration) (Joos

,

2002) and we can mitigate some cross-sectional problems (Ittner et al., 2003),6 and (2) the Taiwan Security Exchange Committee (2006) indicates that about 45 percent of firms in the Taiwan stock market belong to tbe information electronic industry

,

and this industry is the most important and competitive industry in Taiwan (Lee et

al., 2006; Jeng, Fok and Chang, 2009).

3.2.

Variable Measurement

The definition and measurement of variables in tbe empirical models are as follows.

The dependent variable is firm value (MVE). As Roltbausen and Watts (2001) points out

,

studies of value-relevance generally use stock prices to evaluate investors' use of information for valuations of the firms.

The control variables is book value (BV): the book value of the equity of fmns; earnings (NI): the income before discontinued and extraordinary items of firms; product quality (QUALITY): the numbers of quality awards and ISO grant warrants can signi命 theexcellent quality of firm 's product (Liang and Yao

,

2005);

innovation productivity (PATENT): the numbers of patents have been used in many studies as measures of innovation productivity (Holthausen el al., 1995)/

market share (RMS): a firm's market share is divided by the market share for the top three firms in each sub-industry; 8 operation efficiency (CYCLE):

cash-to-cash cycle or cycletime is used to measure firms' operational performance efficiency (Kaplan and Norton, 2004); compensation (COM): Balkin et al. (2000)

6 This study follows Ittner et al. (2003)'s suggestion that focusing on a single industry has substaotially higher intemal validity thao a multi-iodus甘yanalysis

7 Not all pateots are equally valuable, but the numbers of patents have been shown to be

significantly related changes in fmn value, profitabili旬,and sales growth (Balkin, Markman aod Gomez-Mej悶,2000; Hand, 2005). Thus,出 isstudy uses the numbers of patents as the proxy variable for innovation productivity

8 Following 吐leprocedures of defining market share in the marketing and management Iiteratu時,

Bryant et al. (2004) indicate this measure is preferable when cross-sectional data is pooled across industries.

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104 Compensat酬,Life Cyc缸,and the Va/ue Re/evance

0/

Performance Measures

suggest that top manager's efforts in high-technology finns need to be rewarded

using short-term pay. Thus

,

we use the short-tenn compensation

,

consisting of

cash annual salary and bonus in this study.9

The c1assification indicator variable is lifecyc1e stage (STAGE): we follow

and revise the c1assification methods of Anthony and Ramesh (1992), Black

(1998), Chin, Lin, and Chi (2004), Young and Huang (2004), Chin and Lin (2005),

Wu and Cheng (2006), Lin, Wu and Wu (2008), and Taso, Lien and Liu (2010) to

appropriateJy c1assify firm-years observations into three 1ifecyc1e stages using a

multivariate c1assification method.10

First, we choose sales growth rate, capital expenditures, dividend payout, and

firm age as c1assification indicators. Second

,

sales growth rate and capital

expenditure are ranked from the highest to the lowest

,

while the dividend payout

and firm age are ranked from the lowest to the highest. The indicators are given a

score of 0

,

1 or 2 based on their ranking

,

and the scores of the four indicators are

summed together

,

resulting in a composite score ranging from zero to eight.

Finally

,

firm-year observations with scores less than or equal to two (greater than

or equal to six) 的 assigned to the growth stage (the dec1ine stage). Firm-years

with scores three

,

four or five are assigned to the mature stage. There are 314

firm-year observations in the growth stage

,

859 firm-year observations in the

9 We thank the referee for the suggestion to use stock based bonus data to test our hypotheses.

Ittner and Larcker (2001) suggested that high growth finns place larger weight on long-tenn

components of compensation (option and stock holdi月s)than short-tenn cornponents (salary

and annual bonus). However, due to data limitation in Taiwan, Hung and Wang (2008) suggest

that “if 出e financial report could disc10se rnore details such as short-tenn and long-teπn

incentive cornpensation and distinguish different managernent levels, investors would have a

c1ear idea about the president (executive) cornpensation and be better able to rnonitor the

S訂'ategyof cornpensation of the Board", In the reality of Taiwan, most finns do not adopt

long-tenn cornpensation duri月 the period (Tsai, 2003; Lee et a止, 2006), L。但 ofdomestic

research only use cash compensation data to examine top manager' s cornpensation issues in

Taiwan (e.g. Shi, 1996; Jiar嗨, 2001;Tsai, 2003; Lin and Liu, 2003; Young and Wu, 2003; Lee

et a/., 2006).Thus, this s仙dyuses short-tenn cash cornpensation data to test the hypotheses, too

However, we will include a sensitivity analysis to use the estimated stock based bonus of the

top rnanagers to retest our hypotheses.

10 Although the multiple-indicators composite score classification rnethod is lirnited, it does

capture the distinctive econornical and 缸nancialcharacteristics of the different lifecycle stages

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Chiao Da Managemenl ReνiewVo l. 31 No. 1, 2011 105

mature stage and 332 firm-year observations in the decline stage.11

The independent variables for testing HJ are as follows: NI *COM is the

interaction term for NI and COM; QUALITY *COM is the interaction term for QUALITY and COM; P A TENT *CO孔1is the interaction term for P A TENT and COM; RMS *COM is the interaction term for RMS and COM; CYCLE *CO孔1is the interaction term for CYCLE and COM

The independent variables for testing Hz are as follows: QUALITY

*CO孔1*STAGE is the interaction term for QUALITY

,

COM and STAGE; PATENT * COM* STAGE is the interaction term for PATENT, COM and ST AGE; RMS * COM* ST AGE is the interaction term for RMS, COM and ST AGE; CYCLE * COM* ST AGE is the interaction term for CYCLE, COM and STAGE. The definition and measurement ofvariables see Table 1.

3.3.

Empirical Model

To test the hypothesis, we use the cross-sectional regression model as originally developed by Ohlson (1995) and further extend the valuation model in two ways.12 First, we add the interaction terms for each performance measure and compensation in model (\) to test HJ . Second, we add a new dummy variable

(STAGE), and build the three-way interaction terms among nonfinancial variables,

compensatl凹,and ST AGE, based on the Iifecycle stage in model (2) to test Hz

11 We thank the referee for suggestion to consider growth oppo此unityas a classification indicator and retest our hypotheses. Instead of lifecycle stage classification, the observations are classified according to proxy variable for growtb opportuni紗, MIB ratio (e.g., Huang, Chen

and Shi泊, 2001; L凹, 2002; Hung and Wang, 2008; Ch油, Lin, Chen and Chou, 2009).By

ranking MIB ratios frorn tbe highest to the lowest, we distribute the observations into three groups (high growth opportuni旬, rniddle growth opportunity, and low growth opportunity). The empirical result weakly supports the conclusion that the moderating effect of top manager's compensation on the relationship between firm value and nonfmancial performance measures is more positive for firms in the higher growth opportunity than firms in the lower growth opportunity

12 According to the suggestion of Bryant el al. (2004), there is no theoretical or empirical guidance as to the timing effects. Therefore, the exarnination of timing effects is beyond 也e

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106 Compensation, Life Cyc/e, and the Va/ue Re/evance

01

Pe,如manceMeasures

Table 1

Definition and Measurement of Variables

Variables

Dependent variable

Finn value (MVE;I )

Control variables

Book value (BV;I) Eamings (NIρ

Compensation (COM;I) Product quality (QUALlTY; ,) lnnovation productivity (p A TENTh) Market sha閱 (RMSh)

Operation efficiency (CYCLEh)

Independent variables for testing H,

NI;I'COM;I QUALlTY;1 'COM;I PATENT;I'COM;I RMS;I 'COM;I CYCLE;I 'COM;I

Independent variables for testing H1

QUALlTY;I'COM;I' STAGE;I PATENT;I

.

COM;I' STAGE;I RMSh 'COMh ' STAGE;I CYCLE;I 'COM;I • ST AGE;I Classi 日 cationindicator v叮iable STAGEh

Measurement the market value of equity of fmn i at time t / TA,.,; the book value of equity of fi叮四 iat time 1-1 ! TA,.,;

the income before discontinued and extraordinaty items of finns i at

time t / TA,.,;

Top manager's cash annual salary and bonus of finns i at time t /

TA,.,;

The numbers of qual 句 awardsand ISO grant warrants of finn i at

tlmet;

The number of patents issued of finn i at time t;

The market share of fmn i at time t divided by market share for the top three finns in each sub-industry at time t;

365'(Inventory tumover + accounts receivable tumover - accounts payable tumover ) of finns i at time t;

Interaction tenn for Nl and COM of firrns i at time t;

lnteraction tenn for QUALlTY and COM offinns i at time t;

lnteraction tenn for PATENT and COM of finns i at time t;

Interaction tenn for RMS and COM of finns i at time t;

Interaction tenn for CYCLE and COM offinns i at time t;

lnteraction tenn for QUALITY, COM and STAGE offinns i at time t;

lnteraction tenn for PA TENT, COM and ST AGE of finns i at time t;

Interaction tenn for RMS, COM and STAGE offinns i at time t;

Interaction tenn for CYCLE, COM and STAGE offirrns i at tim叭, Split the finn-observations by \ifecycle c1assification indicators in

thr間 groupsand take on the value of 1 if the finn is in the growth

stage for 阻stingH1• and H.品(ortbe finn is in t悅 ma仙restage for 阻stingH 1cl and 0 otherwise

Four lifecycle stage c1assi 日 cationindicators are as follo叫S I.SG;I (令sa訓le臼sgrowth r阻a阻叫)=1∞O' (令sa0 叫le科s冉可:,-S祖ales恥品,) / sa叫le抖S布丸句,.仆-斗l 2.DP叭;1(Dividend payout)

= 100'(annual cash dividend ofcommon stock/annual eamings);

3.CE;1 (Capital expenditure)

= 100 • (purchase fixed assets - reevaluat海dfixed assets of finn i at time t) / A V,.,;

4. AGE;I (Finn years)

= the d i fference be抑自nthe current year and the year which the finn

was originally fonned

• To mitigate the impact of cro品 -sectionaldifference in finn size, tbe variables are scaled by the book value of total assets at the end ofyear 1-1 (TA,.,) (thousand dollars)

•• MVE = market value of equity(bundred millio叫 dollarsor million dollars)1T A叫;BV = the book value of equity (th叫sand dollars)1T A

,

.,; COM top manager's annual salary and bonus (th仙sand

dollars)ITA,.,; Nl = camings (thousand dollars)ITA叫;QUALlTY = the numbers of quality awards and ISO grant warrants; PATENT = the numbers ofpatents; RMS = finn's market share (%);CYCLE =

(15)

Chiao Da Manag,帥的11ReviewVol. 3/ No. /, 20ll 107

The empirical models are as follows.

MVE j = a + ß1BVj吋2NI j+ 恥COMj + ß4QUALITYj +恥PATENTj+ 戶6

RMSj+ 戶7CYCLEj+ ß8INI j*COMj + ß82QUALITY j *COMj+ ß83

PATENTj*COMj+戶84RMSj*COMj +戶的 CYCLEj *COMj+ Ej (1)

Variables de日 mt lOn:

MVE = market value ofequitylTA'_1

BV = the book value of equity/TA叫; NI = earnings IT A 川,

COM = Top manager's annual cash salary and bonuslTA '-1; QUALlTY = the numbers of quality awards and lSO grant warrants; PATENT = number ofpatents;

RMS = firrn's market share;

CYCLE = cycle time;

NI *COM = interaction terrn for NI and COM;

QUALlTY 'COM = interaction terrn for QUALlTY and COM;

PATENT*COM = interaction lerrn for PATENT and COM;

RMS 'COM = interaction terrn for RMS and COM;

CYCLE*COM = interaction terrn for CYCLE and COM

According to H/

,

we expect the coefficients ß8'

,

ß82

,

ß83

,

and ß84

,

which represent the moderating effect of top manager's compensation on the value relevance of various performance measures

,

such as NI

,

QUALlTY

,

PATENT

,

and RMS respectively

,

to be positive

,

and expect the coefficient ß85 of CYCLE*COM is negative.

MVEj= α + ß

,

BVj + ß2NIj+ 恥 COMj+ 恥 QUALITYj+ 恥 PATENTj + ß6 RMSj + 戶7 CYCLEj +ß8' QUALITYj * COMj +ß82 PATENTj *

COMj+ 戶83RMSj * COMj + ß84CYCLEj* COM j +恥, QUALITYj

*COMj*STAGEj + ß92PATENTj*COM 戶 STAGEj + ß93RMSj*COMj*ST AGEj + 戶94CYCLEj *COMj*STAGEj + ßIO

(16)

108 Compensalj帥,Life Cycle, and Ihe均 lueRelevance 0/肉,如-manceMeasures

Variables definition

MVE = market value of equityrr A'.I BV = the book value of equityrr A'_I‘ NI = eamings /TA

,

.1;

COM = Top manager's annual cash salary and bonusrrA 川 QUALlTY = the numbers of quality awards and ISO grant warrants;

PA TENT = number of patents;

R此1S= firm's market share; CYCLE = cycle time;

QUALITY *COM = interaction term for QUALlTY 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;

QUALITY *COM 可TGAE= interaction term for QUALlTY, COM and STAGE;

PATENT*COM*STGAE = interaction term for PATENT, COM and STAGE;

RMS*COM可TGAE= interaction term for RMS, COM and ST AGE; CYCLE*COM*STGAE = interaction term for CYCLE, COM and STAGE; STAGE = lifecycle stage

According to H], relative to the later lifecycle stages, we expect the

coefficients 此,戶92,and 戶93 to be positive and the coefficient ß94 is negative for n口nsin the earlier lifecycle stages.

4.

Empirical Results and Analysis

4.

1.

Descriptive Statistics

In Table 2, we present the descriptive statistics for the full sample of firms. As we show in Panel A ofTable 2, the mean (median) ofMVE is 27

,

260 (5

,

136)

million New Taiwan Dollars. The means of QUALITY, PATENT, RMS, and

CYCLE are 0,76(units), 32.72(units), 6.45(%), and 81.23 (days) respectively.

Additionally

,

the mean (or median) of the top manager's compensation (COM) 的

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Chiao Da Managemenl ReνiewVo l. 3/ No. /.2011 109

Table 2

Summary Descriptive Statistics of Variables

Variable MVE CO抖個 QVALlTY PATNET RMS CYCLE NI BV

Panel A: Full sample

Mean 27,260.60 4,373.52 0.76 32.72 6.45 81.23 1,241.91 11,862.99

25% 2,261.00 2,344.00 0.00 0.00 。 78 34.40 66.45 1,526.01 Mediar> 5,136.00 3,236.00 0.00 2.00 2.13 66.59 273.31 2,852.30

75% 14,026.00 4,896.00 1.00 14.00 7.31 107.39 728.28 6,638.16 Std. Dev. 95,361.65 4,240.24 1.64 127.51 10.93 100.31 5,416.7534,987.19 Panel B: the growth stage

Mean 40,615.26 4,620.31 0.89 42.57 7.56 80.78 1,778.30 15,815.45 25% 3,452.00 2,725.00 0.00 0.00 1.05 41.76 166.39 1,768.21

Median 9,184.50 3,537.00 0.00 2.00 2.82 67.03 420.90 3,343.59 75% 28,463.25 5,286.50 1.00 13.00 8.97 102.52 1,112.83 9,488.07 Std. Dev. 115,424.54 3,757.18 1.52 183.69 11.52 65.41 6,006.7032,926.56 Panel C: the mature stage

Mean 27,251.95 4,450.61 。 76 33.70 6.52 80.35 1,203.43 12,178.44 25% 2,279.00 2,329.00 0.00

。。。

0.78 34.02 32.18 1,530.15 Median 4,731.00 3,195.00 0.00 2.00 2.23 65.64 251.19 2,764.04

75% 14,503.00 4,899.00 1.00 15.00 7.42 107.48 691.47 6,625.80 Std. Dev. 99,017.19 4,315.92 1.74 120.63 11.06 71.85 5,307.9835,153.19 Panel D: the decline stage

Mean 14,652.35 3,940.64 0.61 20.90 5.22 83.91 834.18 9,200.21 1

25% 1,702.00 2,194.00 0.00 0.00 0.58 29.13 67.49 1,370.98 Median 3,455.00 3,093.00 0.00 2.00 1.53 68.52 187.93 2,585.24

75% 7,706.75 4,652.25 1.00 12.00 5.40 109.85 576.87 5,418.19 Std. Dev. 54,582.72 4,449.92 1.48 63.34 9.88 168.18 5,072.1036,368.47

• MVE= market value of eq叫 ty(million dollars); COM= top manager's annual salary and bonus (thousand dollars); QUALlTY= the numbers of quality awards and ISO grant warrants; PATENT=the numbers ofpatents; RMS= firrn's market share (%); CYCLE=cycle time (days); NI=eamings (million dollars); BV=book value oftotal equity (million dollars)

• The variables in the Table 2 are not def1ated by the book value of total assets at the beginning of the year

(18)

1 10 Compensali仰, LifeCyc缸,側的he均lueReleν'ance of Performance Measures Variable MVE COM QUALITY PATENT RMS CYCLE NI Table 3

Correlation Coefficients Among Variables

WIVE COM QUALITY PATENT RMS CYCLE NI BV

。 456*** 0.151*** 0.509*** 0.589*** -0.360*** 0.702*** 0.794*** 。 141*** 0.453*** 0.047* 0.115*** 0.519*** 0.250*** 0.081*** 。 280*** 0.364*** -0.177*** 0.386*** 0.436*** 。 178*** 0.168*** -0.058 抖。 .103*** 0.137*** 。 261*** -0.206*** 0.284*** 0.523*** 0.632*** 0.336*** 0.094*** 0.501*** -0.309*** 0.404** 傘。 606*** -0.097*** -0.110*** -0.059** -0.085*** -0.163*** -0.422*** -0.233*** 0.787*** 0.328*** 0.056** 0.428*** 0.604*** -0.120*** 。 436*** BV 0.802*** 0.338*** 0.057** 0.447艸* 0.617**' -0.098*** 0.732'** a: Right-up: Spearman Correlation; left-down: Pearson Co時軍lation

b: *料,材,* Statistically significant at tbe 1 忱 5%,and 10% leve1s, respectively (two-tailed) c: MVE = market value of equityl T A的 COM= top manager's annual salary and bonusl TA

•1; QUALITY = the numbers of quality awards and ISO grant warrants; PATENT = tbe

number of patents; R卸的=fmn's market share; CYCLE=cycle time; BV = tbe book value of equity offirm i at time 1-1/ TA'.I; NI = eamings/ TA 叫 TA 叫~the book value of total assets at the end of year 1-1

Panel B, Panel C, and Panel D in Table 2 present the descriptive statistics

for the firrns-observations in different lifecyc1e stages. The means (median) of MVE are 40,615.26(9,184.50); 27 ,251.95(4,731.00); 14,652.35(3,455.00) mil\ion New Taiwan Dol\ars. The means of QUALITY are 0.89, 0.76 and 0.61 in the different lifecyc1e stages; the means ofPATENT are 42.57; 33.70 and 20.90; the

means of RMS are 7.56%, 6.52% and 5.22%; finally, the means of CYCLE are 80.78, 80.35 and 83.91 days respectively. As Table 2 presents, the means of

various perforrnance measures are quite diverse; and it shows there are divergent characteristics among the firrns. This result reflects the reality in Taiwan and

imp1ies that firrns in the earlier lifecyc1e stage may place more emphasis on the nonfinancial performance measures. The means (median) of COM is 4

,

620.31 (3,537.00), 4,450.61 (3,195.00) and 3,940.64 (3,093.00) thousand New Taiwan Dol\ars. This is also consistent with our inference that firms may rewards the top managers based on their perforrnance in different lifecyc1e stages.

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Chiao Da Managemenl Review 他 1. 3/ No. /.2011 l l l

Table 4

Empirical Results of the Moderating Effect of Compensation on the Relationship Between Firm Value and Performance Measures

MVEi= u+ß1BVi+ß2N1i+ 恥 COMi+趴QUALITYi+恥 PATENTi +仇 RMS汁ß7CYCLEi+恥 l N1i*

COMi +ß82QUALITYi *COMi+戶的 PATENTi *COMi+。制 R扎1Si *COMi +戶肘CYCLEi

*COMi+ 街 (1)

Variable Expected sien Estimated coefficient I-statistic VIF-value

Intercept ? 0.001 1.897* BV + 0.002 M + ~~ COM + -0.360 QUALITY + -0.001 PATENT + -0.001 RMS + 0.001 CYCLE -0.001 NI*COM QUALITY*COM PATENT*COM RMS*COM CYCLE*COM 3.365 0.066 0.001 1.573 0.001 ++++ 6.024*** 1.173 10.058*** 1.559 -4.220*** 5.775 1.638 1.843 -0.057 1.642 1.945* 2.110 -2.723*** 3.331 10.436*** 3.366 3.213*** 2.037 2.542** 1.168 2.031 ** 1.592 2.267** 5.241

Adj. R-squared 0.340

F-statistic 65.466

observations 1.505

a *,帥,*** Statistically signi日 cantat the 10%, 5%, and 1 % levels, respectively (two-ωled)

b: MVE = market value of equity (hundred million dollars)/TAt-1 (thousand dollars) ; BV = the book value of equity (thousand dollars) /T A 1-1 ;NI = eamings (thousand dollars) /TA 叫,

COM = Top manag缸'sannual cash salary and bonus (thousand dollars)/TA t仆;QUAL1TY

= the numbers of quality awards and ISO grant warrants; PA TENT = number of patents; RMS = firm's market share; CYCLE = cycle time; NI *COM = interaction term for NI 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 = intera叫 iontcrm for CYCLE and COM

Table 3 repo口s the Spearman and Pearson correIations among se1ected

variab1es. As expected

,

the performance measures

,

such as QUALITY (Pearsonρ

= 0.047; Spearman ρ= 0.151)

,

P A TENT (Pearsonρ= 0.519; Spearman ρ= 0.509)

,

RMS (Pearson p = 0.632; Spearmanρ= 0.589)

,

and CYCLE (Pearsonρ= -0.097;

Spearman ρ= -0.360) show signi日 cant reIations with MVE. This imp1ies that

firms generally have more market value as firms with better performance. Further

,

the various performance measures, such as NI (Pearsonρ= 0.328; Spearman ρ=

0.386)

,

QUALITY (Pearsonρ = 0.115; Spearmanp = 0.141)

,

PATENT (Pearson

(20)

112 Compensali帥.L戶。咐.and the 均/ueRe/evance

0

1

Pe吶rmanceMeasures

and CYCLE (Pearsonρ = -0.110; Spearmanρ= -0.177) also show significant

relations with COM. In general

,

observed relations among variables are consistent

with our expectations. This is consistent with our inference and encourages us to

examine whether firms pay higher compensation to managers with higher

performance and thereafter increase the firm value. However, there are high

correlations among independent variables. To further test for the existence of

multicollinearity, we utilize the Variance Inf1ation Factor (VIF) in later analysis.

4.2.

Hypothesis Testing

Table 4 presents the results for testing Hl and shows that NI is significantly

positively associated with firm value (MVE) (恥 = 0.004, p < 0.01), and the

coefficient of interaction term for NI *COM is also significantly positive (ßS1=

3.365, p < 0.01). This result is consistent with the expectation that financial

measure (NI) generally is an important value-relevant performance measure and

the compensation (COM) has a positive moderating effect on the relationship

between firm value and Nl. The coefficients of the interaction term for

QUALITY*COM

,

PATENT*COM and RMS*COM are also significantly positive (ß82 = 0.066, P < 0.01; 戶的=0.001, p < 0.05;戶84= 1.573, p < 0.05). This result suggests that compensation also has significant and positive moderating effect on the association between nonfinancial performance measures and firm value. The results conform to the inference made by this study and Hl is

supported. However, the coefficients of the interaction term for CYCLE*CO恥f

are also significantly positive (恥5= 0.001, p < 0.05). We will examine it in the

later sections.

In a knowledge based economy

,

the new rule for companies to build wealth

is innovation productivity. Innovation plays a critical role in determining a firm's

success or failure in intensely competitive industry. Looking at Patents, as one of

the indicators of innovation productivity

,

we can fmd more and more firms

developing patents in the information electronics industry in Taiwan. For example,

Taiwan Semiconductor Manufacturing (TSMC) received 331 patents in 2005 and 463 patents in 2006; QUANTA Computer Inc. (QCI) received 735 patents in

(21)

Chiao Da Managemenl Reνlew 均1.31 No. 1, 20Jl 113

2005 and 934 patents in 2006; CHI MEI Optoelectronics Corporation (CMO) received 183 patents in 2005 and 142 patents in 2006. Further, in the international marketplace, firms focus on improving product quality and extending their market

shares as the key success factors of their competitive strategies to generate more benefits. Thus, firms should pay higher compensation to managers with higher performance and thereafter increase the firm value. Our empirical results shown in Table 4 ref1ect the reality in Taiwan and support this assertion.

Table 5 presents the results of testing H2. We test the three-way interaction among nonfinancial performance measures, compensation, and a dummy variable (ST AGE) based on the lifecycle stages. Panel A of Table 5 shows the model reaches a significant level (F value = 44.766, p < 0.01), and the adjusted R2 is 0.374, implying the explanatory power of the regression model is good. The results of comparison between firms in the growth stage and the mature stage indicate that the coefficients of interaction terms for QUALITY *COM *STAGE, RMS *COM *STAGE and CYCLE *COM *STAGE are significant (恥 1 =0.085, p < 0.05; ß93= 7.533, P < 0.01; ß94= -0.001, p < 0.05). This result supports H2a.

Panel B of Table 5 shows the results of comparing fmns in the growth stage with firms in the decline stage. The coefficients of RMS*COM*ST AGE are also positive and significant (戶93= 9.050, p < 0.0 1). This result supports H2b weakly Panel C of Table 5 shows results between firms in the mature stage and the decline stage. The coefficient of the three-way interaction term for CYCLE *COM *ST AGE is negatively signi日 cant (ß94 = -0.001, P < 0.05). H2,. is also

supported we渴kly.

The result of Table 5 implies the moderating effect of top manager's compensation on the relationship between firm value and nonfinancial performance measures is more positive for firms in the growth stage than in the mature and decline stages.

In hyper-competitive markets, 缸ture profitable growth opportunities will greatly add to the firm value. Firms have to pursue 缸turegrowth opportunities in order to survive (Balkin et al., 2000). When a firm is in the growth stage, most of its firm value is attributable to profitable expected future growth opportunities rather than assets-in-place. Nonfinancial performance measures are defined as

(22)

114 Compensalion, Life Cycle, and Ihe均/ueRe/evance of Performance Measures

血口n-specificinforrnation that is correlated with future growth opportunities. Thus, in the growth stage

,

firrns generally tend to place great emphasis on nonfinancial perforrnance measures in reward system and investors positively evaluate firms particularly with better nonfinancial perforrnance in this early lifecyc1e stage.

The results of Table 4 and Table 5 indicate that top manager's compensation

e咄ancesthe relation between firrn value and perforrnance measures. Our results also imply that firrns in the inforrnation electronic industry in Taiwan competes with other firrns through various nonfinancial perfonnance measures, such as product quali句 (QUALITY), innovation productivity (PATENT), market shares (RMS), and operation efficiency (CYCLE) and rewarding managers for doing well for these perfonnance measures, it appears that finns will benefit more and the market will reflect the reality

4.3.

Sensitivity Analysis

We checked the robustness of our results using several altemative specifications described below.

4.3.1. Re-classify Life Cycle Stage

Some researchers suggest that dividend payout is not appropriate as the

c1assification indicator in Taiwan. This study uses sales growth rate, capital expenditures

,

and finn age as the c1assification indicators and rec1assifies finn-year observations based on trisection of the composite scores without dividend payout as the classification indicator. Among the total 1,505 firrn-years observations

,

there are 297 observations in the growth stage

,

901 observations in the mature stage and 307 observations in the dec1ine stage. We retest H1 and the results are shown in Table 6.

The Panel A of Table 6 shows

,

compared with the mature stage

,

the coefficients of QUALITY*COM*STAGE and RMS*COM *STAGE are significantly positive (恥 1 =0.065

,

p

<

0.10;

ß

93=

7.844

,

p

<

0.01) for firrns in the growth stage

,

and Panel B of Table 6 shows the results of comparing firrns in the growth stage and the dec1ine stage. The coefficients of QUALITY *COM *STAGE

,

and RMS*COM* STAGE are significantly positive (戶91 = 0.134

, P

<

(23)

Chiao Da Managemenf ReνiewVol. 31 No. J, 2011 115

。.10; 戶的= 11.539

, P <

0.01). Finally

,

Panel C of Table 6 shows the results of comparing firms in the mature stage and the decIine stage. Only the coefficients of CYCLE*COM* STAGE are significantly negative (ß94= -0.001

,

P

<

0.05). ln

sum

,

the results suppo口 theprevious concIusions.

4.3.2. Splitting the Sample into Firms with Positive Earnings or Firms with Negative Earnings

Gaver and Gaver (1998)

,

HassabELnaby et al. (2005) and Reitenga (2006) suggest that the relation between compensation levels and firm performance depends on eamings levels. To test our research hypotheses more deeply

,

we

partition our sample into two sub-samples according to whether the firm's eamings are positive or negative. Table 7 presents the results of testing HI and

Table 8 presents the results oftesting

H

2 .

The results of Panel A in Table 7 show the coefficients of interaction term of NI*COM, QUALITY*COM

,

R卸的 *COM, and CYCLE*COM are significantly associated with firm values (此 I = 1.550

,

p < 0.01

,

ß82 = 0.0帥,p < 0.01

,

ß84 =

1.525

,

p < 0 肘,and ß85 = -0.002

,

p < 0.05

,

respectively) for firms with positive

eamings. On the contrary, the results ofPanel B in Table 7, only the coefficient of the interaction term of QUALITY*COM is significantly positively associated with firm values (恥=0.035

,

p < 0.10) for firrns with negative eamings.

ln testing H2, the results of Panel A in Table 8 present that compared with firms with positive eamings in the mature stage, the coefficients of QUALITY* COM* STAGE, RMS* COM* STAGE, and CYCLE* COM*STAGE are significantly associated with firm value (恥 1 = 0.116,p < O.叭,戶的 = 6.142

,

p <

0.01

,

and ß94= -0.002

,

P < 0.01

,

respectively) for firms with positive eamings in the growth stage. The results of Panel B in Table 8 present that compared with firms with positive eamings in the decIine sta悍,the coefficients for QUALITY * COM* STAGE, RMS* COM* STAGE, and CYCLE* COM* STAGE are significant (恥 1 =0.137

,

p < 0.05,戶93= 5.597

,

p < 0.01

,

and ß94 = -0.003

,p

< 0.05

,

(24)

116 Compensari帥. Life Cyc/e. and rhe 均/ueRe/eνance 01 Performance Measures

Table 5

The Empirical Results of the Firms in Different Lifecycle Stages

MVE;~α+ß,BV,+ß,NI;+恥COM;+弘 QUALl TY, +ß,PATENT; +ß, RMS;+恥 CYCLE;+ß"QUALITY,' COM+ß81 PATENT;' COM +恥 RMS;'COM+恥CYCLE;• COM +仇QUA Ll TY,•

C:OM戶 STAGE+ß91 PATENT; 'COM,' STAGE +自91RMS且'COM;'STAGE+ß"CYCLE; 'COM;' STAGE +ß" STAGE +品 (2)

Panel A: Paoel B. Pan川的C:

the growth stage (STAG[ ~I) the growth stage (STAG[ ~I) the mature stage (STAGE ~I)

relative to the mature stae:e relative to the decHne stae.e relative to the decline stae.e

Estimated Estimated Estimated

Variable Expected sign coefficient t-value coefßcieciennt t I-vølue

lntercept -0 帥 49ß ~ JOt w ~∞ 6.987.... 0.( ()2 NI 血的 13 .560'" 0.( 10 COM 0.301 4.234'" 且;50 QUALlTY PATENT RMS CYCLE QUALITY'COM PATENT* COM RMS'COM CYCLE* COM QUALITY'COM' STAGE PATENT'COM' STAGE RMS'COM' STAGE CYCLE

.

COM' STAGE STAGE Adj. R-squared F之 stattstlC 0.374 44.766 o 冊 l 0.001 0.002 -0.001 0.029 0.001 -3.175 0.001 0.085 0.001 7.533 -0.001 0.001 0.257 1.507 3.367-.. -2.964... 0.818 0.882 -2.750... -0.485 2.324" 。∞ l 5.349'" -1.993" 5.209..

.

0.001 0.001 0.002 0.001 0.033 0.003 -4.911 -0.001 0.101 。∞2 9.050 -0.001 0.001 Adj. R-squared 0.454 F-statistìcs 34.515 0.258 2.135.. 2.802' " 0.653 -0.452 2.865... 2.252.. 0.831 1.520 -1.572 3.987... 1.138 5.673... Adj. R-squared F-statistics 0.001 0.001 0 個 l O 曲 l 0.016 0.001 -1.740 0.001 0.024 -0 ∞ l 1.492 0 個 i o ∞ l 0.299 32.673

observatÎons 1,173 observ到 ìons 646 ohservations 1 .19 J

a

.

.

"

.

...

Statistically s唱nific阻tat the 1們告,5%.and 1% levels. respectively (two-tailed)

0.119 2.313" 0.105 -2.442" 。 359 0.884 -1.163 1.610 0.557 -0.517 0.952 -2.308" 5.384'"

b: MVE=markct value of equity (hund間dmilJion dollars)rrAt-l(thousand dollars); BV=the book value ofequÎty (thousand dollarsyrA I-I;NI= eamings (thousand dollars)fTA 1-1; COM=Top manag肘'sannual cash salary and bonus (thous血ddollars)ITA 叫;QUALITY~伽 numbersof qualÎty awards and ISO grant warrants; PATENT=number of patents: RMS=fmn's market share; CYCLE:cycle time: QUALITY 叮OM=interactiontenn for QUALITY and COM; PATENT-COM""Înteraction tenn for PATENT and COM: RMS 吃OM""interactiontenn for RMS and COM: CYCLE何OM=interactiontenn for CYCLE 叩dCOM: QUALlTY

.

COM'STGAE

司nteraction tenn for QUALlTY,COM and STAGE; PATENT-COM-STGAE =叫eraction term for PATENT .COM and STAGE: RMS

.

COM-STGAE :cinteraction tcnn for RMS.COM and STAGE: CYCLE﹒COM'SτGAE=interaction tcnn for CYCLE. COM and STAGE: STAGE""li訊社yc1cstage

(25)

Chiao Dα Managemenl Reνiew~包1.31 No. 1,2011 117

Table 6

The Empirical Results of the Firms in Different Lifecycle Stages-without Dividend Payout as the Classification Indicator

MVE,~α咕IBVj+恥 NI,+恥 COM,+仇 QUALITY ,咕lPATENT, +P6 RMS,+ p

,

CYCLE,+ P"QUAL叮Y,'COM+P" PATENT,' COM +P盯 RMS,• COM+P" CYCLE, • COM +恥,QUALITY,•

C:OM戶 STAGE+ß,但PATENT, 'COM, • STAGE +恥)RMS, 'COM, • STAGE+ß"CYCLE, 'COM, • STAGE+ ßIO STAGE +巳 (2)

Panel A: Panel8: ranel L:

the growth slage (STAGE =1) the growth stage (STAGE =1) relative 10 the decline the mature stage (STAGE-I) relative 10 the mature stage ~ relative 10 the decline stage

Variable E叩 ected Esrimated l-value Estimated I-value Estimated I-value

!!G..!! coefficienl coefficient coefficient

Intercept ? 。田 l -0.931 -0.001 1.697' '。∞l 。 779 BV o ∞2 6.676... 0.002 3.714... 0.002 6.323... NI 。的5 12.383"

.

。 008 10.759... 。。但 13.354... COM 0.267 3.885." 0.316 3.203*.. 130 2.174" QUALlTY 。叩l 0.033 0.001 0.617 0.001 -0.030 PATENT 。曲 l -0.858 -0.001 -2.22 日,車 0.001 1.765* RMS 。∞2 2.659" . 0.004 3.304". 0.001 0.925 CYCLE o ∞ l -2.075" 0.001 0.108 -0.001 1.801

.

QUALITY'COM 0.024 。 670 0.086 -1.040 0.040 0.815 PATENT' COM 。∞1 0.665 o ∞3 2.274.. 0.001 。 695 RMS'COM -2.204 -2.052.. 7.257 -2.952... -3.168 -1.956' CYCLE' COM 。∞l -0.852 0.001 0.115 。∞l 1.194

QUALlTY'COM' ST AGE 0.065 1.805' 。 134 1.772. 0.034 0.702

PATENT'COM' STAGE 0.001 0.242 0.002 1.070 -0.001 0.449

RMS'COM' STAGE 7.844 5.518." 11.539 4.584... 2.631 1.562

CYCLE'COM' STAGE -0.001 1.331 0.001 1.506 。∞l .2.194*.

STAGE + 0 冊 l 4.818*.. 。 001 3.024-.. 。∞l 4.329' "

Adj. R-squared 0.346 Adj. R-squared 0.466 Adj. R-squared 0.263

F-statÎstic 40.615 F-statistics 33.939 F-statistics 27.926

observat泊的 1,198 。bservations 604 observations 1,208

a : •. .... ... . StatistÎcal1y signi日 cantal the 10%用5%.and 1% levels, r凹戶口 ively(two-Iailed)

b: MVE=markcl value of 問uity(hundred million dollars)rr Ar-I (曲。usanddollars); BV=the book value ofequity (thousand dollars)fTA 川;NI=eamings (tnousand dollars)fT A r仆;COM=Top manage內 annualcash sala可 and bonus (thousand dolJars)ff A 川、 QUALITY=thenumbers of quality awards and ISO grant warranls; PATENT=number of patents; RJ.A S=盯nn'smarket share: CYCLE=cycle time; QUALlTY 叮OM=interactiontcnn

for QUALlTY and COM; PATENT"COM=interaction tenn for PATENT and COM: RMS .COM司ntcractiontcnn for RJ.AS and COM; CYCLE吃OM=i nteractionlerm for CYCLE and COM: QUALlTY

.

COM'STGAE =interaction tcrm for QUALITY,COM and STAGE; PATENT"COM.STGAE =interaction term for PATENT .COM and STAGE: RJ.AS

.

COM"STGAE :interaction term for RMS.COM and STAGE CYCLE

.

COM*STGAE=interaction term for CYCLE. COM and STAGE: STAGE=lifecycle stage

(26)

ll8 Compensali仰,Li戶 Cyc/e,and the 均/ueRe/evance 0/ Peφrmance MeaslIres

Table 7

Empirical ResuIts of Firms with Positive Earnings and Negative Earnings

MVEj=且+ß1BVj + ß2NIj +恥 COMj+趴 QUALITYj+恥PATENTj+仇 RMSj+戶7CYCLEj+ ß81間 j*COMj+仇2QUALITYj*COMj+戶的PATENTj可OMj+ 戶84RMSj*COMj+

HR5CYCLEj*COMj + Cj

ill

Panel A: Panel B:

Firms with positive earnings Firms with negative earnings

Expected Estimated Estimated

Variable coefficient VIF-value coefficient VIF-value

slgn (t-statistic) {的tatistic) Intercept ? -0.001 0.001 (-2 .4 32 抖) (1.124) BV + 0.001 1.238 0.001 1.110 (2.529 叫*) (5.158 件*) NI + 。.018 2.008 0.001 1.421 (20.701 ***) ( 1.787*) COM + -0.101 8.059 0.103 6.140 (-1.024) (1.855*) QUALITY + -0.001 1.925 -0.001 1.867 (-2.179 抖) (-1.275) PATENT + -0.001 1.638 0.001 1.948 (-0.361) (4.737* 抖) RMS + 0.001 2.197 0.002 2.027 (2.256艸) (4.767 材*) CYCLE 0.001 3.192 0.001 4.665 (2.252 抖) (0.818) N1*COM + 1.550 5.441 0.314 2.902 (3.660 帥*) (1.571) QUALITY* + 0.080 2.129 0.035 2.160 COM (3.975 仲*) (1.726*) PATENT*COM + 0.001 1.118 0.001 1.700 (1.174) (-1.147) RMS*COM + 1.525 1.617 -2.232 1.576 (2.066**) (-1.891 *) CYCLE*COM -0.002 4.956 -0.001 8.865 (-2.343 叫) (-0.780) Adj. R-squared 0.487 0.335 F-statistic 99.379 11.882 observations 1,245 260

a 弋..,••• Statistically significant at thc 10%.5%. and 1% levels. respe叫 vely(two.tailed)

b: MVE=markct value of equity (hundrcd million doll位"S)rrA'.I(thousanddollars); BV= the book value ofeq叫ty(thousand doUars)rrA'.I: NI=

earnings (thousand dol1ars) rr A 叫;COM= Top managcr's annuat cash salary and bonus (thou阻nddol1ars) rrA ,..; QUAL1 TY~ the

numbers of quali可 awardsand ISO I!fanl warran峙;PATENT::::II numbcr of patents: RMS:::firm's market share; CYCLE=cycle time; NI .COM=interaction tcnn for Nl and COM:QUALIIT .COM=interaction teml for QUALlTY and COM; PATENT.COM=intcraction term

ror PATENT and COM;RMS .COM=interaction tenn for RMS and COM; CYCLE

.

COM""intcraction t自四 forCYCLE and COM

(27)

Chiao Da Management ReviewVol. 31 No. 1.2011 119

changes in firm value

,

profitabili旬, and sales growth (Balkin et al.

,

2000; Hand

2005). However, we find the results ofTable 8 are interesting. Compared with the mature and decline stages

,

the coefficients of PATENT * COM* ST AGE are significant (恥2 = 0.013

,

P < 0.01) for firms with negative eamings in the growth stage. This implies that in the growth stage, the firrn having the ability to develop

more patents

,

even with negative eamings

,

may create more competitive

advantage for survival and increase firrn value. ln this case

,

the firrn will benefit more than in the later Iifecycle stages in the Taiwan inforrnation industry.

The results in Table 7 and Table 8 imply that the moderating effect of compensation on the relationship between nonfinancial perforrnance measures

and firrn value is stronger for firrns with positive earnings than firrns with

negatlve eammgs. 4.3.3. Sub-industry

The firms in the inforrnation electronic industry in Taiwan have different core

products

,

operating strategies

,

and business environment. Thus

,

the usefulness of

infonnation about perforrnance measures may vary according to the changes in

the production function and activities of firrns. The Taiwan Stock Exchange (TSE) c1assifies firms into eight different sub-industries from year 2007 to reflect the

real conditions in the Taiwanese inforrnation electronic industry. Therefore

,

we

follow the categories of TSE and re-examine the hypotheses. From the empirical

results in Table 9

,

we find the relationship between firrn values and the

interactions of these perforrnance measures with compensation are obviously different among these eight sub-industries. This shows that the importance and

meanings of the moderating effect of compensation upon the eight sub-industries are different. In particular

,

we find that the coefficients of NI*COM are significant for six sub-industries (e.g.

,

Semiconductor

,

Photodiode

,

Electronic

components

,

Electronic channel

,

Inforrnation service and other electronic

industry). This evidence conftrms the suggestion of many studies that financial

measures are generally the key deterrninants for compensation and firrn

(28)

120 Compensali間,Life Cycle, and Ihe均/ueRe/evance o/Perjòrmance Measures

Table 8

Empirical ResuIts of Firms with Positive Earnings and Negative Earnings in the Different LifecycIe Stages MVEi=α+ ß , BVi+仇Nli+ 仇 COMi+仇 QUALITYi+ 恥 PATENTi+ 仇R恥fSi+恥 CYCLEi+ß8

,

QUALITYi ' COM + ß82 PATENTi ' COM + ß83 RMSi' COM +

ß84 CYCLEi • COM +恥, QUALITYi • COMi' STAGE +。但PATENTi 'COMi' STAGE +但的RMSiCOM

i'STAGE + ß94CYCLEi 'COMi' STAGE + ß,o

STAGE+e; (2)

PANELA: te.ting H,. PANEL B: te.ting H"

tbe growth .tage (STAGE =1) relative to the mature .tage the growth stage (STAGE =1) relative to the declioe "a2e E,timated 別 gn

Es吋 matedcoefficient (t-statistic) (Firms with p的 itive

earnings)

Estimated coefficient

(t-statistic) Variables E.pected sign (/-.tati.tiC) coefficient

Estimated coefficient

(t-,tatis討c)

(Firms with

neg剖iveearnings)

Variables E.pected (Firms with

negat自開 earnings) PATENT* COM + l ) l } l )2) l ) l ) l ) l ) 3 ) l i o 頃。嚕 。 7 副臼 O 嚕。 9030 唱 hH 嚕。.­ O 叫 O 峙。川 I OHO 門。泣。 1OM2 吋。而 -1.7f1tlE-i o ko6 olobo-ouoouo 807 - HEMP-4-on 、 HV 司, qOL-8(2 ll (lj o 卜 3 」 勻 , ‘ 、 ' , 、 巾 , ­ nu--'a 內 J 弓 , -叭 , , 4 內 yl 山 H 7 14 內 F 勻 , &內,自 t nJ 、 3 叭 η 內 u 。。­ JB-042 吋 91010γ040 1 4132 吋 -um--O 哼 , O 呻 IM 呀。 2ofdAUro 喝 OW 凶川 2 一 1 171 . 7l5 日 45 1 4 間34 rL a i}: 訓。 4OUa' 。』 hn-5 .OOL-A - M-2524 -l 3 什 V41-M 旦 4 ρ 扣 ρ( 4「位一 國-( |-mM 一 引­ w l 炒一­ Er 趴 UI -­ {{型 -av -9 . ++ + + ++ 一 ++一 側 M co

--1

vy--tT 呼 : T 呵呵 ­ pl 叫 E I ! 旭 L 刊 A UL 汁一 盯 MAHmbCAR­ M 叫 VIOUKMyuk ­ LHBN CQP UR C QR 一 川口叮 l 7 l 75 0l)l 心 F2) l )l 心 Jlq1 叫 丙∞ 叫 ∞ 叫例關 ω 叫 mm 叫∞叫∞削的叫∞也 foo7020LOUO8020huOUOL-t 1 、 司 白, 包句 IMP-! 叫反 U 吋 白 , .們 U VH U γ , “ -7 。 O J LA 峙,、 d ' 4 、 -4 233-m 咐 , 叫叫 , 必叮叮叮叭叭叫創均位叫 , 圳 的閃閃 例旦 。"。叭。 "2" 。 η0 位 OHOMOEON­ nv 仇 UAVOOAVAM 可 AVIanuia h nuh 川 AU 必 u nvr 川 AU 內叫 V AV-h 一 -ll50-4-42 口 -4 口 自 υ勻 ,色。。 ny r v ' 卜 、 ,141 , 目 、 aEE 、、 4 , SB 、 司‘ d 峙, -吟、 d 'γ 位 (( Intercept 8V + NI COM QUALlTY + PATENT + RMS + CYCLE QUALlTY' COM +

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