The impact of capital markets on compensation incentives, organizational slack, and firm innovation

Date of Completion

January 1999


Business Administration, Management|Economics, Finance




This dissertation models and tests the impact that capital market differences have on organizational slack and the innovative capacity of firms. The dissertation also examines the role of the board of directors in setting compensation packages that moderate the relationship between markets and the capacity for innovation. The model is tested with structural equation modeling.^ There are several interesting results: First, there are differences in the governance relationships between NYSE and NASDAQ traded firms. Most notably, market and governance variables predict research intensity as a strategy variable for NASDAQ traded firms, while the same variables predict capital intensity as a strategy variable for NYSE traded firms. Second, increased stock visibility is found to be negatively associated with organizational slack and positively associated with industry-adjusted capital intensity for NYSE firms. Third, increased stock visibility is found to be associated with relative research intensity for NASDAQ traded firms. Finally, the incentive compensation structure of the CEO is found to mediate the relationship between capital markets and research intensity and capital intensity for firms on both exchanges. ^