Liu, Lisa Shifei. (2008) The impact of research and development on relative performance evaluation in the UK. International Journal of Managerial Finance, Vol.4 (No.4). pp. 278-294. ISSN 1743-9132

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Abstract

Purpose – The purpose of this paper is to investigate whether R&D spending influences the association between the cash compensation of boards of directors and relative performance evaluation (hereafter RPE). Design/methodology/approach Design/methodology/approach – The empirical modelling of directors' compensation focuses on the multiperiod compensation approach suggested by Lambert, Lambert and Larcker and Janairaman, Lambert, and Larcker. A panel sample of 586 UK non-financial public listed firms for the period 1990 to 1998 is employed to test for the existence of RPE in both R&D intensive and non/low R&D firms. Findings – The main results suggest that implicit RPE is used to determine directors' cash compensation before the institutional influences and self-regulation are likely to have taken effect. We find that the association between the cash compensation of directors and accounting measures of relative performance is lower in R&D intensive firms compared to firms with non/low R&D. It is possible that R&D intensive firms do not use accounting-related RPE at all. In comparison, a statistically significant relationship indicates that non/low R&D firms do use accounting-based RPE. The results also show that, in both intensive and non/low R&D firms, cash compensation is negatively related to own firm stock returns and industry average stock returns. Originality/value – This paper contributes to the limited RPE found in the existing UK compensation literature by establishing the implicit use of accounting-based RPE for non/low R&D firms in the UK.

Item Type:	Journal Article
Subjects:	H Social Sciences > HJ Public Finance
Divisions:	Faculty of Social Sciences > Warwick Business School > Accounting Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	International Journal of Managerial Finance
Publisher:	Emerald Group Publishing Ltd.
ISSN:	1743-9132
Date:	2008
Volume:	Vol.4
Number:	No.4
Number of Pages:	17
Page Range:	pp. 278-294
Identification Number:	10.1108/17439130810902796
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
URI:	http://wrap.warwick.ac.uk/id/eprint/44331

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