Organization capital and executive performance incentives

Mingze Gao, Henry Leung, Buhui Qiu

Research output: Contribution to journalArticlepeer-review

22 Citations (Scopus)


We conjecture that a firm's organization capital (OC) has a substitution effect on its executive pay-for-performance sensitivity (PPS) and empirically document a robust and significant substitution effect of OC on executive PPS. We use state-level unemployment insurance benefits as an instrumental variable for OC and show that the documented OC-PPS substitution effect is likely causal. Results are also robust to a stacked difference-in-differences estimation approach based on a quasi-natural experiment of exogenous CEO turnovers due to health-related issues. Our findings strongly suggest that greater OC substitutes for costly executive incentive compensation to sustain firm productivity and increase shareholder wealth.
Original languageEnglish
Article number106017
Pages (from-to)1-18
Number of pages18
JournalJournal of Banking and Finance
Publication statusPublished - Feb 2021
Externally publishedYes


  • Organization capital
  • Executive pay-for-performance sensitivity


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