Top management team incentive dispersion and investment efficiency

This study examines the impact of pay-performance sensitivity (PPS) dispersion within top management teams (TMT) on firm-level investment efficiency. Utilizing data from 1994 to 2022, we find a positive association between TMT PPS dispersion and investment efficiency, indicating that a broader incentive spread is associated with more prudent investment decisions. The research extends beyond traditional compensation level disparities, highlighting the influence of executive compensation structures on strategic resource allocation. Robustness checks, including various econometric approaches and the inclusion of corporate governance factors, confirm the persistence of this relationship. Additionally, channel analysis reveals that firms with higher R&D intensity experience amplified benefits from PPS dispersion. Our findings suggest that nuanced TMT incentive structures are crucial in aligning managerial actions with shareholder interests, thereby fostering optimal investment strategies and contributing to long-term firm growth.