The Effect of Industry Tournament Incentives on Investment Efficiency and Capital Structure Optimism

Document Type : Research Paper

Authors

1 Assistant Professor of Accounting. Allameh Tabataba'i University, Tehran, Iran.

2 M.A. Student of Management Accounting, Allameh Tabataba'i University, Tehran, Iran.

10.22103/jak.2021.17022.3409

Abstract

Objective: The most important decisions affecting the creation of value and wealth in the enterprises are decisions about investment and capital structure. But investing and financing is not appropriate in themselves, and the enterprises need to pay attention to the investment efficiency and the optimality of the capital structure in these decisions. In short, investment efficiency is investing only in projects with a positive net present value and the optimization of the capital structure means minimizing the cost of capital and bankruptcy risk through financing. In general, investment inefficiency and sub optimality of the capital structure are due to information asymmetry and agency problems. The best way to deal with agency problems is to control the motivations of managers. Considering Maslow's hierarchy of needs and the effect of needs on motivation, it can be said that in addition to financial incentives, social incentives are also effective in the behavior of enterprise managers. Therefore, this study seeks to investigate the effect of industry tournament incentives as a measure of social incentives on investment efficiency and capital structure optimization.
 
Methods: In this study, the natural logarithm of industry compensation gap has been used to measure industry tournament incentives, Biddle et al.'s model has been used to measure investment efficiency, and Synn and Williams's model has been used to evaluate the optimality of capital structure. Also, to test the research hypotheses, the data of 123 companies listed on the Tehran Stock Exchange from 2010 to 2019 were used and the data were analyzed using multiple linear regression.
 Results: The findings of this study showed that the industry tournament incentives have a negative (positive) and significant effect on investment efficiency (inefficiency). However, the industry tournament incentives do not have a significant effect on overinvestment and lowerinvestment in particular. Also, the industry tournament incentives have a positive and significant effect on the optimality of the capital structure and do not have a significant effect on the positive and negative deviation from the optimal capital structure.
Conclusion: The main hypothesis of this study is that high pay and other desirable characteristics of the managers at other companies in the same or related industries will provide incentives to managers at their own companies. In general, the findings of this study indicate the positive effect of industry tournament incentives on improving company performance. Therefore, policymakers and decision-makers about managers' compensations and motivations should pay attention to other incentives in addition to financial incentives. And during determining the manager’s compensation, in addition to the amount of compensation, pay attention to the other manager's compensation in the same industry and the labor market of managers, and create a balance between different types of motivation.

Keywords

References

افلاطونی، عباس؛ امیربختیاروند، امین. (1396). نقش کیفیت افشا و کیفیت اقلام تعهدی در کاهش انحراف از سطح بهینۀ ساختار سرمایه. مدیریت دارایی و تأمین مالی، 5(4)، 180-167.
انواری رستمی، علی اصغر؛ تجویدی، الناز؛ جهانگرد، میثم. (1394). تأثیر ساختار سرمایه و پاداش هیئت مدیره بر کارایی سرمایه گذاری. پژوهش‌های تجربی حسابداری، 4، 130-109.
بادآورنهندی، یونس؛ تقی‌زاده‌خانقاه، وحید. (1392). بررسی ارتباط بین کیفیت حسابرسی و کارایی سرمایه گذاری. بررسی‌های حسابداری و حسابرسی، 72 (20)، 19-42.
تهرانی، رضا؛ حصارزاده، رضا. (1388). تأثیر جریان‌های نقدی آزاد و محدودیت در تأمین مالی بر بیش سرمایه گذاری و کم سرمایه گذاری. تحقیقات حسابداری، 3، 67-50.
ثقفی، علی؛ عرب مازار یزدی، مصطفی (1389). کیفیت گزارشگری مالی و ناکارایی سرمایه‌گذاری. پژوهش‌های حسابداری مالی، 2(4)، 20-1 .
دموری، داریوش؛ قدک فروشان، مریم. (1397). سیاست‌های تأمین مالی و کارایی سرمایه گذاری در شرکت‌های پذیرفته شده در بورس اوراق بهادر تهران. راهبرد مدیریت مالی، 4(6)، 175-157.
رحیمیان، نظام‌الدین؛ توکل نیا، اسماعیل؛ تیرگری، مهدی. (1392). بررسی ارتباط انحنایی ساختار سرمایه با عملکرد و ارزش شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران. دانش مالی تحلیل اوراق بهادار، 6(19)، 79-67 .
رهنمای‌رودپشتی، فریدون؛ نیکومرام، هاشم؛ شاهوردیانی، شادی. (1385). مدیریت مالی راهبردی. چاپ اول. انتشارات کسا کاوش.
سهیلی‌فر، فاطمه؛ رمضان احمدی، محمد؛ جرجرزاده، علیرضا؛ نصیری، سعید. (1399). انحراف از سطح بهینه ساختار سرمایه و ناکارایی سرمایه‌گذاری‌های واحد تجاری. مجله دانش حسابداری، 11(2)، 137-107 .
فروغی، داریوش؛ ساکیانی، امین. (1395). تأثیر توانایی مدیریتی بر کارایی سرمایه‌گذاری. پژوهش حسابداری و حسابرسی، 6(3)، 126-97.
مهرانی، کاوه؛ پروائی، اکبر. (1393). کیفیت افشا در شرکت‌های خانوادگی پذیرفته شده در بورس اوراق بهادار تهران. بررسی‌های حسابداری و حسابرسی، 21(4,5)، 54-27.
نمازی، محمد؛ مرادی، جواد. (1384). بررسی تجربی سازه‌های مؤثر در تعیین پاداش هیئت مدیره شرکتهای پذیرفته شده در بورس اوراق بهادار تهران. مطالعات تجربی حسابداری مالی، 3(10)، 101-73.
ولیان، حسن؛ صفری گرایلی، مهدی؛ عبدلی، محمدرضا؛ کوشکی جهرمی، علیرضا. (1397). انگیزه‌های رقابتی و تجدید ارائه صورت‌های مالی: آزمون نظریه محرک-پاسخ. مطالعات تجربی حسابداری مالی، 15(60)، 156-125.
References
Aflatooni, A., Amirbakhtiarvand, A. (2017). The Role of disclosure quality and accruals quality in reducing the deviation from the optimal capital structure Journal of Asset Management and Financing, 5(4),167-180 [In Persian].
Al‐Hadi, A., Hasan, M.M., Taylor, G., Hossain, M., Richardson, G. (2017). Market risk disclosures and investment efficiency: International evidence from the gulf cooperation council financial firms. Journal of International Financial Management Accounting, 28(3),349-393.
Ali, U., Hirshleifer, D. (2017). Opportunism as a firm and managerial trait: Predicting insider trading profits and misconduct. Journal of Financial Economics, 126(3),490-515.
Anvari Rostami, A.A., Tajvidi, E., Jahangard, M. (2016). Empirical investigation on the effect of capital structure and board compensation on investment efficiency. Journal of Empirical Research in Accounting, 4, 109-130 [In Persian].
Badavar Nahandi, B.N., Taghizadeh Khanqah, T.K. (2013a). The relationship between audit quality and investment efficiency. Accounting and Auditing Review, 20(2), 19-42 [In Persian].
Becker, B.E., Huselid, M.A. (1992). The Incentive effects of tournament compensation systems. Administrative Science Quarterly, 37(2), 336-350.
Biddle, G.C., Hilary, G., Verdi, R.S. (2009). How does financial reporting quality relate to investment efficiency? Journal of Accounting Economics, 48(2-3),112-131.
Brockman, P., Unlu, E. (2009). Dividend policy, creditor rights, and the agency costs of debt. Journal of Financial Economics, 92(2), 276-299.
Coles, J.L., Li, Z., Wang, A.Y. (2018). Industry tournament incentives. The Review of Financial Studies, 31(4), 1418-1459.
Cooney Jr, J.W., Kalay, A. (1993). Positive information from equity issue announcements. Journal of Financial Economics, 33(2), 149-172.
Dechow, P.M., Dichev, I.D. (2002). The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77(s-1), 35-59.
Dickens, W.T., Katz, L.F. (1987). Interindustry wage differences and industry characteristics. In Lang Kevin Leonard Jonathan (Eds.). Unemployment and the Structure of Labor Markets (pp. 48-89): Blackwell.
Fazzari, S., Hubbard, R.G., Petersen, B. (1988). Investment, financing decisions, and tax policy. The American Economic Review, 78(2), 200-205.
Frank, M.Z., Goyal, V.K. (2009). Capital structure decisions: Which factors are reliably important? Financial Management; 38(1), 1-37.
Goodman, T.H., Neamtiu, M., Shroff, N., White, H.D. (2014). Management forecast quality and capital investment decisions. The Accounting Review, 89(1), 331-365.
Graham, J.R., Harvey, C.R., Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(1-3), 3-73.
Hajihassani, F., Parkhondeh, T., Jeddi, D. (2020a). The impact of value added tax (VAT) on Investment efficiency of companies listed in Tehran Stock Exchange. Management Accounting, 13(44), 23-41 [In Persian].
Jensen, M.C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323-329.
Kubick, T.R., Lockhart, G., Mauer, D. (2018). Industry tournament incentives and debt contracting. Retrieved from: https://www.semanticscholar.org/paper/Industry-Tournament-Incentives-and-Debt-Contracting-Kubick/fdc4f 333a3ddfaedda002b0851eb18f38bbbbe67
Kubick, T.R., Lockhart, G.B. (2020). Industry tournament incentives and stock price crash risk. Financial Management, 345-369.
Lai, S.M., Liu, C.L. (2018). Management characteristics and corporate investment efficiency. Asia-Pacific Journal of Accounting Economics, 25(3-4), 295-312.
Lambert, R.A. (1986). Executive effort and selection of risky projects. The RAND Journal of Economics,17(1), 77-88.
Maslow, A. (1954). Motivation and Personality (Vol. 1): Harper & Brothers.
McKnight, P.J., Weir, C. (2009). Agency costs, corporate governance mechanisms and ownership structure in large UK publicly quoted companies: A panel data analysis. The Quarterly Review of Economics Finance, 49(2),139-158.
McNichols, M.F. (2002). Discussion of the quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77(s-1), 61-69.
Mehrani, K., Parvaei, A. (2014). Disclosure quality in family firms listed in the Tehran Stock Exchange. Accounting and Auditing Review, 21(4), 527-540 [In Persian].
Mu, C., Wang, A., Yang, J. (2017). Optimal capital structure with moral hazard. International Review of Economics Finance, 48, 326-338.
Myers, S.C., Majluf, N.S. (1984). Corporate financing and investment decisions when firms have informationthat investors do not have. Journal of Financial Economic, 2(13), 187-221.
Namazi, M., Moradi, J. (2005). An empirical investigation of determinants of board of directors' bonuses of the firms accepted in Tehran Stock Exchange (TSE). Empirical Studies in Financial Accounting, 3(10), 73-101 [In Persian].
Neveu, R.P. (1989). Fundamentals of Managerial Finance. Thomson Learning South-Western, Nashville.
Rahimian, N., Tavakoinia, E., TirgariI, M. (2013b). Investigating the Curvilinear relationship between capital structure xith performance and frim value of companies listed in Tehran Stock Exchange. Financial Knowledge of Securities Analysis, 6(19), 67-79 [In Persian].
Rahnamay Roodposhty, F., Nikoomaram, H., Shahverdi, S. (2006). Strategic fincial managment. Tehran: Kasa Kawosh [In Persian].
Richardson, S. (2006). Over-investment of free cash flow. Review of Accounting Studies, 11(2-3), 159-189.
Rosen, S. (1983). The economics of superstars: Reply. The American Economic Review; 73. 3,460-462.
Saghafi, A., Arabmazar, M. (2011). Financial reporting quality and investment inefficiency. Journal of Financial Accounting Research, 2(4), 1-20 [In Persian].
Scott, W.R. (2003). Financial Accounting Theory. Prentice Hall, New Jersey.
Silverstein, B. (2020). Managerial opportunism and corporate investment efficiency. Available at SSRN 3463419.
Soheilyfar, F., Ramezan Ahmadi, M., Jorjorzadeh , A., Nasiri, S. (2020b), Deviation from optimal capital structure and inefficiencies of investment. Journal of Accounting Knowledge, 11(2), 107-137 [In Persian].
Stulz, R. (1990). Managerial discretion and optimal financing policies. Journal of Financial Economics, 26(1), 3-27.
Supra, B., Narender, V., Jadiyappa, N., Girish, G. (2016). Speed of adjustment of capital structure in emerging markets. Theoretical Economics Letters, 6(1), 534-548.
Synn, C., Williams, C. (2015). Financial reporting quality and optimal capital structure. The 8th CAPANA Annual Research Conference, www.capana.net/www/conference2015/Syn nWilliams.pdf.
Tehrani, R., Hesarzadeh, R. (2009). The effect of free cash flow and financing constraints on over-investment and under-investment. Accounting and Auditing Research, 1(3), 50-67 [In Persian].
Valiyan, H., Safari Gerayli, M., Abdoli, M., Koushki Jahromi, A. (2018). The effect of tournament incentives on financial restatements: Stimulus-response theory test. Empirical Studies in Financial Accounting, 15(60), 125-156 [In Persian].
Van Binsbergen, J.H., Graham, J.R., Yang, J. (2010). The cost of debt. The Journal of Finance, 65(6), 2089-2136.
Wang, Y., Wang, Y. (2016). Economic value added, corporation growth and overinvestment—based on state-owned corporations. Modern Economy, 7. 14,1640.
Zalaghi, H., Amareh, R. (2019). Investigation of the relationship between working capital efficiency and deviation from the optimal level of capital structure in firms listed in Tehran Stock Exchange. Journal of Asset Management and Financing, 7(3),71-84 [In Persian].
Zhang, H., Huang, H.J., Habib, A. (2018). The effect of tournament incentives on financial restatements: Evidence from China. The International Journal of Accounting, 53(2), 118-135.
Journal of Accounting Knowledge
Volume 12, Issue 3 - Serial Number 46
December 2021
Pages 89-110

Files

History

  • Receive Date: 19 January 2021
  • Revise Date: 04 April 2021
  • Accept Date: 09 May 2021

Share

How to cite

Statistics