Stock bonus compensation and firm performance in Taiwan

Abstract

Purpose

The main purpose of this paper is to investigate the relative firms’ performances of equity‐based compensation schemes using a panel regression approach from Taiwanese experience.

Design/methodology/approach

Previous theory considers executive stock options as an important input in the production process, but the empirical support for the performances of equity‐based compensation schemes is mixed in developed countries. This paper uses a panel data regression to analyze the influence of stock bonus and executive stock option on performance.

Findings

The evidences in Taiwan suggest that there exist positive associations between the amount of stock bonuses and firms’ operating performance. It is also found that firms with larger firm size or high growth opportunity tend to adopt stock bonus

Research limitations/implications

The first limitation is that we the dataset over our sample period 1999‐2001 is still incomplete because the executive stock options allowed by the regulation are not prevalent in Taiwan over that period. The second limitation is the unique stock bonus system in Taiwan is not observed for developed countries.

Practical implications

The result imply a positive association between stock bonus and firm's operating performance. Companies with well‐designed bonus compensation may lead to better performance.

Originality/value

The unique stock bonus compensation schemes in Taiwan are used in general to contribute to the success of the high‐tech companies. This paper first addresses the importance of the stock bonus on compensation issue for high‐tech companies. This added knowledge is beneficial to practitioners and academics whose interest lies in equity‐based compensation and performance.

Citation

Guo, W., Shiah‐Hou, S. and Yang, Y. (2006), "Stock bonus compensation and firm performance in Taiwan", Managerial Finance, Vol. 32 No. 11, pp. 862-885. https://doi.org/10.1108/03074350610703821