TY  - JOUR
AU  - Murphy,Kevin J.
AU  - Gibbons,Robert
TI  - Does Executive Compensation Affect Investment?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4135
PY  - 1993
Y2  - February 1993
UR  - http://www.nber.org/papers/w4135
L1  - http://www.nber.org/papers/w4135.pdf
N1  - Author contact info:
Kevin M. Murphy
Booth School of Business
The University of Chicago
5807 S. Woodlawn Ave.
Chicago, IL  60637
Tel: 773/702-7280
Fax: 773/834-3554
E-Mail: murphy@chicagoBooth.edu

Robert S. Gibbons
MIT Sloan School of Management
100 Main Street, E62-524
Cambridge, MA  02142
Tel: 617/253-0283
Fax: 617/253-2660
E-Mail: rgibbons@mit.edu
M2  - featured in NBER digest on 1992-11-01
AB  - Investment decisions require trading off current expenditures against future revenues. If revenues extend far enough into the future, the executives responsible for designing long-run investment policy may no longer be in office by the time all the revenues are realized. We present evidence that: (1) on average, executives are close to leaving office (relative to the payout period of many investments); (2) bonuses based on accounting earnings constitute an important part of compensation for the typical executive; and (3) executives respond in predictable ways to compensation plans based on accounting measures of earnings. Based on these facts, we hypothesize that existing compensation policy induces executives to reduce investments during their last years in office. In our empirical work, however, we find that investment expenditures on research and development and on advertising tend to be largest in the final years of a CEO's time in office. We offer several possible explanations for this surprising finding
ER  -