Journal article

Investor sentiment, executive compensation, and corporate investment

Bruce D Grundy, Hui Li

JOURNAL OF BANKING & FINANCE | ELSEVIER SCIENCE BV | Published : 2010

Abstract

We develop a model that predicts corporate investment level increases with investors' optimism and that the relationship between investment level and executive compensation depends on investor sentiment and other parameters. The empirical test shows that optimism is significantly and positively related to the level of investment and that executive compensation is insignificantly related to the level of investment. The managerial share ownership is positively related to the level of investment, conditional on the degree of optimism. The empirical results suggest that executives make investment decisions that not only cater to investor sentiment but also reflect their own interest in the compa..

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University of Melbourne Researchers