Skip to main content
SpringerLink
Log in

The effect of upper echelons’ compensation on firm internationalization

  • Published:
Asia Pacific Journal of Management Aims and scope Submit manuscript

Abstract

This paper is built upon previous work concerning how three factors—an upper echelon’s compensation, the total compensation level of a chief executive officer (CEO), and compensation gaps between a CEO and a top management team (TMT)—affect a firm’s international expansion level. Using longitudinal data (2000–2005) from 528 publicly listed firms in Taiwan as our sample, we found that CEO total compensation level and TMT total compensation were positively related to firms’ international expansion level, and that the larger the compensation gap between CEO and TMT, the higher the given firm’s international expansion level. The implications that these findings have for future research are discussed.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. The structural attribute consists of the following two items: foreign assets as a percentage of total assets (FATA) and overseas subsidiaries as a percentage of total subsidiaries (OSTS).

  2. These variables were loaded as a factor using the “principal component extraction” method and “varimax rotation.”

  3. This study excluded long-term incentive compensation such as the value of stock options because, in Taiwan, a firm’s annual report does not disclose these data.

  4. This study includes all industries in Taiwan and classifies them into five categories: construction, heavy manufacturing, light manufacturing, the high-tech industry, and other.

  5. The maximum value of our sample’s international-expansion level is 2.729 and the minimum is 0. The average FSTS value is .043, the average FATA value is .487, and the average value of geographical dispersion is 1.312.

References

  • Adams, J. S. 1965. Inequity in social exchange. In L. Berkowitz (Ed.). Advances in experimental social psychology. New York: Academic.

    Google Scholar 

  • Adithipyangkul, P., Alon, I., & Zhang, T. (2011) Executive perks: Compensation and corporate performance in China. Asia Pacific Journal of Management, 28(2): 401–425.

    Google Scholar 

  • Araujo, L., & Rezende, S. 2003. Path dependence, MNCs and the internationalization process: A relational approach. International Business Review, 12: 719–737.

    Article  Google Scholar 

  • Arendt, L. A., Priem, R. L., & Ndofor, H. A. 2005. A CEO-adviser model of strategic decision-making. Journal of Management, 31: 680–699.

    Article  Google Scholar 

  • Autio, E., Sapienza, H., & Almeida, J. 2000. Effects of age at entry, knowledge intensity, and imitability on international growth. Academy of Management Journal, 43: 909–924.

    Article  Google Scholar 

  • Barkema, H. G., & Shvyrkov, O. 2007. Does top management team diversity promote or hamper foreign expansion?. Strategic Management Journal, 28: 663–680.

    Article  Google Scholar 

  • Berry, C. H. 1975. Corporate growth and diversification. Princeton, NJ: Princeton University Press.

    Google Scholar 

  • Brady, G., & Helmich, D. 1982. The hospital administrator and organizational change: Do we recruit from the outside?. Hospital and Health Services Administration, 27: 53–62.

    Google Scholar 

  • Buck, T., Liu, X., & Skovoroda, R. 2008. Top executive pay and firm performance in China. Journal of International Business Studies, 39: 833–850.

    Article  Google Scholar 

  • Carpenter, M. A., & Sanders, W. M. G. 2002. Top management team compensation: The missing link between CEO pay and firm performance?. Strategic Management Journal, 23: 367–375.

    Article  Google Scholar 

  • Carpenter, M. A., & Sanders, W. M. G. 2004. The effects of top management team pay and firm internationalization on MNC performance. Journal of Management, 30: 509–528.

    Article  Google Scholar 

  • Coombs, J. E., & Gilley, M. K. 2005. Stakeholder management as a predictor of CEO compensation: Main effects and interactions with financial performance. Strategic Management Journal, 26: 827–840.

    Article  Google Scholar 

  • Daniels, J., & Bracker, J. 1989. Profit performance: Do foreign operations make a difference?. Management International Review, 29: 46–56.

    Google Scholar 

  • Devers, C. E., Cannella, Jr., A. A., Reilly, G. P., & Yoder, M. E. 2007. Executive compensation: A multidisciplinary review of recent developments. Journal of Management, 33: 1016–1072.

    Article  Google Scholar 

  • Dow, J., & Raposo, C. C. 2005. CEO compensation, change, and corporate strategy. Journal of Finance, 60: 2701–2727.

    Article  Google Scholar 

  • Ezzamel, M., & Watson, R. 1998. Market comparison earnings and the bidding-up of executive cash compensation: Evidence from the United Kingdom. Academy of Management Journal, 41: 221–231.

    Article  Google Scholar 

  • Fernández, Z., & Nieto, N. J. 2006. Impact of ownership on the international involvement of SMEs. Journal of International Business Studies, 37: 340–351.

    Article  Google Scholar 

  • Fong, B. A., Misangyi, V. F., & Tosi, Jr., H. L., 2010. The effect of CEO pay deviations on CEO withdrawal, firm size, and firm profits. Strategic Management Journal, 31(6): 629–651.

    Google Scholar 

  • George, G., Wiklund, J., & Zahra, S. A. 2005. Ownership and the internationalization of small firms. Journal of Management, 31: 210–233.

    Article  Google Scholar 

  • Gerhart, B., Minkoff, H. B., & Olsen, R. N. 1995. Employee compensation: Theory, practice, and evidence. In S. D. Rosen & P. T. Barnum (Eds.). GR Ferris. Oxford: Blackwell Publishers.

    Google Scholar 

  • Geringer, J., Beamish, P., & da Costa, R. 1989. Diversification strategy and internationalization: Implications for MNE performance. Strategic Management Journal, 10: 109–119.

    Article  Google Scholar 

  • Greene, W. H. 2000. Econometric analysis, 4th ed. Englewood Cliffs, NJ: Prentice Hall.

    Google Scholar 

  • Greve, H. R. 2003. Organizational learning from performance feedback: A behavioral perspective on innovation and change. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Hambrick, D. C., Cho, T. S., & Chen, M. J. 1996. The influence of top management team dissimilarity on firms’ competitive moves. Administrative Science Quarterly, 41: 659–684.

    Article  Google Scholar 

  • Hambrick, D. C., & Finkelstein, S. 1995. The effects of ownership structure on conditions at the top: The case of CEO pay raises. Strategic Management Journal, 16: 175–194.

    Article  Google Scholar 

  • Hanlon, M., Rajgopal, S., & Shevlin, T. 2003. Are executive stock options associated with future earnings?. Journal of Accounting & Economics, 36: 3–43.

    Article  Google Scholar 

  • Henderson, A., & Fredrickson, J. 2001. Top management team coordination needs and the CEO pay gap: A competitive test of economic and behavioral views. Academy of Management Journal, 44: 96–117.

    Article  Google Scholar 

  • Henderson, A. D., & Fredrickson, J. W. 1996. Information-processing demands as a determinant of CEO compensation. Academy of Management Journal, 39: 575–606.

    Article  Google Scholar 

  • Herrmann, P., & Datta, D. K. 2005. Relationships between top management team characteristics and international diversification: An empirical investigation. British Journal of Management, 16: 69–78.

    Article  Google Scholar 

  • Hitt, M. A., Bierman, L., Uhlenbruck, K., & Shimizu, K. 2006a. The importance of resources in the internationalization of professional service firms: The good, the bad, and the ugly. Academy of Management Journal, 49: 1137–1157.

    Article  Google Scholar 

  • Hitt, M. A., Hoskisson, R. E., & Kim, H. 1997. International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40: 767–798.

    Article  Google Scholar 

  • Hitt, M. A., Tihanyi, L., Miller, T., & Connelly, B. 2006b. International diversification: Antecedents, outcomes, and moderators. Journal of Management, 32: 831–867.

    Article  Google Scholar 

  • Jaw, Y.-L., & Lin, W.-T. 2009. Corporate elite characteristics and firm’s internationalization: CEO-level and TMT-level roles. International Journal of Human Resource Management, 20: 220–233.

    Article  Google Scholar 

  • Johanson, J., & Vahlne, J. E. 1977. The internationalization process of the firm—a model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8: 23–32.

    Article  Google Scholar 

  • Katz, L. F. 2004. Efficiency wage theories: A partial evaluation. NBER Working paper no. 1906, National Bureau for Economic Research, Cambridge, MA.

  • Kuivalainen, O., Sundqvist, S., & Servais, P. 2007. Firm’s degree of born-globalness, international entrepreneurship orientation and export performance. Journal of World Business, 42: 253–267.

    Article  Google Scholar 

  • Lambert, R., Larcker, D., & Weigelt, K. 1993. The structure of organizational incentives. Administrative Science Quarterly, 38: 438–461.

    Article  Google Scholar 

  • Larraza-Kintana, M., Wiseman, R. M., Gomez-Mejia, L. R., & Welbourne, T. 2007. Distinguishing between employment and compensation risk influences on perceived risk taking. Strategic Management Journal, 28: 1001–1020.

    Article  Google Scholar 

  • Leone, A. J., Wu, J. S., & Zimmerman, J. L. 2006. Asymmetric sensitivity of CEO cash compensation to stock returns. Journal of Accounting & Economics, 42: 167–192.

    Article  Google Scholar 

  • Li, H., & Li, J. 2009. Top management team conflict and entrepreneurial strategy making in China. Asia Pacific Journal of Management, 26(2): 263–283.

    Article  Google Scholar 

  • Lien, Y.-C., Piesse, J., Strange, R., & Filatotchev, I. 2005. The role of corporate governance in FDI decisions: Evidence from Taiwan. International Business Review, 14: 739–773.

    Article  Google Scholar 

  • Lin, W.-T., Cheng, K.-Y., & Liu, Y. 2009. Organizational slack and firm internationalization: A longitudinal study of high-technology firms. Journal of World Business, 44: 397–406.

    Article  Google Scholar 

  • Lin, Y.-F. 2005. Corporate governance, leadership structure and CEO compensation: Evidence from Taiwan. Corporate Governance: An International Review, 13: 824–835.

    Article  Google Scholar 

  • Main, B., O’Reilly, C. A., & Wade, J. 1993. Top executive pay: Tournament or teamwork?. Journal of Labor Economics, 11: 607–628.

    Article  Google Scholar 

  • McDougall, P. P., & Oviatt, B. M. 2000. International entrepreneurship: The intersection of two research path. Academy of Management Journal, 43: 902–906.

    Article  Google Scholar 

  • Miller, D. J. 1995. CEO salary increases may be rational after all: Referents and contracts in CEO pay. Academy of Management Journal, 38: 1361–1385.

    Article  Google Scholar 

  • Minichilli, A., Corbetta, G., & MacMillan, I. C. 2010. Top management teams in family-controlled companies: ‘Familiness’, ‘faultlines’, and their impact on financial performance. Journal of Management Studies, 47: 205–222.

    Article  Google Scholar 

  • Mitchell, J., & Hambrick, D. 1992. Diversification posture and top management team characteristics. Academy of Management Journal, 35: 9–37.

    Article  Google Scholar 

  • Palmer, T. B., & Wiseman, R. M. 1999. Decoupling risk taking from income stream uncertainty: A holistic model of risk. Strategic Management Journal, 20: 1037–1062.

    Article  Google Scholar 

  • Peng, M. W. 2006. Global strategy. Cincinatti, OH: Thomson-South-Western.

    Google Scholar 

  • Peterson, R. S., Smith, D. B., Martirana, P. V., & Owens, P. D. 2003. The impact of chief executive officer personality on top management team dynamic: One mechanism by which leadership affects organizational performance. Journal of Applied Psychology, 88: 795–808.

    Article  Google Scholar 

  • Prahalad, C. 1990. Globalization—the intellectual and managerial challenges. Human Resource Management, 29: 27–38.

    Article  Google Scholar 

  • Sanders, W. M. G., & Carpenter, M. A. 1998. Internationalization and firm governance: The role of CEO compensation, top team composition, and board structure. Academy of Management Journal, 41: 158–178.

    Article  Google Scholar 

  • Sullivan, D. 1994. Measuring the degree of internationalization of a firm. Journal of Business Studies, 25: 325–342.

    Article  Google Scholar 

  • Sullivan, D., & Bauerschmidt, A. 1989. Common factors underlying barriers to export: A comparative study in the European and US paper industry. Management International Review, 29: 46–63.

    Google Scholar 

  • Sun, S. L., Zhao, X., & Yang, H. 2010. Executive compensation in Asia: A critical review and outlook. Asia Pacific Journal of Management, 26(3): 361–380.

    Google Scholar 

  • Tihanyi, L., Ellstrand, A. E., Daily, C. M., & Dalton, D. R. 2000. Composition of the top management team and firm international diversification. Journal of Management, 26: 1157–1177.

    Article  Google Scholar 

  • Tihanyi, L., Johnson, R. A., Hoskisson, R. E., & Hitt, M. A. 2003. Institutional ownership differences and international diversification: The effects of boards of directors and technological opportunity. Academy of Management Journal, 46: 195–211.

    Article  Google Scholar 

  • United Nations. 2005. World investment report. New York: United Nations.

    Google Scholar 

  • Vancil, R. 1987. Passing the baton. Boston: Harvard University Press.

    Google Scholar 

  • Wang, H., Feng, J., Liu, X., & Zhang, R. 2011. What is the benefit of TMT’s governmental experience to private-owned enterprises? Evidence from China. Asia Pacific Journal of Management, 28(3): 555–572.

    Google Scholar 

  • Watson, R., Storey, D., Wynarczyk, P., Keasey, K., & Short, H. 1996. The relationship between job satisfaction and managerial remuneration in small and medium-sized enterprises: An empirical test of ‘comparison income’ and ‘equity theory’ hypotheses. Applied Economics, 28: 567–576.

    Article  Google Scholar 

  • Werner, S., & Ward, S. 2004. Recent compensation research: An eclectic review. Human Resource Management Review, 14: 201–227.

    Article  Google Scholar 

  • Westphal, J., & Bednar, M. 2008. The pacification of institutional investors. Administrative Science Quarterly, 53: 29–72.

    Article  Google Scholar 

  • Yip, G. S., Biscarri, J. G., & Monti, J. A. 2000. The role of the internationalization process in the performance of newly internationalizing firms. Journal of International Marketing, 8: 10–35.

    Article  Google Scholar 

  • Yokota, R., & Mitsuhashi, H. 2008. Attributive change in top management teams as a driver of strategic change. Asia Pacific Journal of Management, 25(2): 297–315.

    Article  Google Scholar 

  • Zahra, S. A. 2005. Entrepreneurial risk taking in family firms. Family Business Review, 18: 23–40.

    Article  Google Scholar 

  • Zajac, E. J., & Westphal, J. D. 1995. Accounting for the explanations of CEO compensation: Substance and symbolism. Administrative Science Quarterly, 40: 283–308.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. College of Management, Department of Business Administration, National Chung Cheng University, Chiayi, Taiwan

    Wen-Ting Lin

  2. College of Management, Department of International Business, National Taiwan University, 1 Section 4, Roosevelt Road, Taipei, 10617, Taiwan

    Kuei-Yang Cheng

Authors
  1. Wen-Ting Lin
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Kuei-Yang Cheng
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Wen-Ting Lin.

Additional information

Wen-Ting Lin acknowledges financial support from the National Science Council (NSC 98-2410-H-194-114-MY3). We are grateful to the Senior Editor, Professor Lu, and two anonymous reviewers for their insightful comments.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Lin, WT., Cheng, KY. The effect of upper echelons’ compensation on firm internationalization. Asia Pac J Manag 30, 73–90 (2013). https://doi.org/10.1007/s10490-011-9261-9

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10490-011-9261-9

Keywords

Search

Navigation