Authors : Jui-Hsiu Chang, Chung-Jen Fu and Lee-Wen Yang
Abstract: Modern companies generally separate ownership from management rights. High-level professional managers are employed to make adequate decisions for their companies and offered a sizable salary enhance corporate performance. Nevertheless, there consequently, exists agency problem in the company. Seeing this, some scholars propose the application of optimal contraction approach to mitigate the agency problem. From the optimal contraction approach, a company must provide appropriate level of compensation contract to prevent agency problem from happening and to motivate top managers to expand efforts that meet stockholder’s value. By applying tournament theory, we research into the links between managerial compensation contract and firm performance. From the theoretical perspectives, we wonder whether compensation differentials is influenced by managerial hierarchy and whether top managers exert crucial influence, through their managerial power, on the company’s decisions and accordingly proceed to make an impact on firm performance. Therefore, managerial power factor is added in this study. Empirical result shows positive standpoint toward tournament theory which implies managerial compensation contract exerts assured effect on firm performance. On the other hand, empirical result does not prove any positive significance regarding managerial power toward firm performance, except that there is significant negative relation between manager’s tenure and firm performance.
Jui-Hsiu Chang, Chung-Jen Fu and Lee-Wen Yang, 2017. Tournament Theory and the Influence of Managerial Power on Corporate Performance. International Business Management, 11: 1482-1490.