The Role of Managerial Compensation in Changing the Relationship between Business Strategies and Over (under) Investment

Abstract

The tendency to change the way investment is due to the lack of transparency in the financial situation and the unfavorable business strategy is created so that managers change business strategies in order to cover the risk arising from non-receipt of compensation. In this paper, the goal is to examine the role of managerial compensation in changing the relationship between business strategies and over (under) investment. For this purpose, data on 120 companies listed in Tehran Stock Exchange for the period of 1385 to 1396 were extracted and a hybrid data regression model was used to test the research hypotheses. The research results indicate that prospector strategy leads to over-investment. Also, the results of the second hypothesis of the research show that managers' compensation is significantly affected by the relationship between prospector strategy and over investment. The third hypothesis of the research indicates that a conservative strategy leads to under investment. Finally, managerial compensation has no meaningful effect on the coherent interaction of conservative strategy and under investment.

Keywords

• business strategy
• over (under) investment
• managerial compensation