This paper studies foreign currency adjustments in executive compensation (i.e. exclusionof foreign currency impacts from accounting-based performance metrics). In light of recent debates on the pros and cons of using non-GAAP adjustments in compensation, I propose a rational explanation for adjusting foreign currency concerning firm’s operating decisions. I employ real options theory to study foreign currency fluctuations in decision making.
I show, both analytically and empirically, that Integration Level, the extent of coordinated activities or cross-border transactions between the parent and its foreign subsidiaries, can serve as an explanation. Firms with a high level of integration are less likely to adopt foreign currency adjustments. On average, firms consider foreign currency fluctuations to make corporate decisions; the usage of foreign currency adjustments in executive compensation is less likely to be a result of managerial opportunism.
| Identifer | oai:union.ndltd.org:columbia.edu/oai:academiccommons.columbia.edu:10.7916/30m0-y644 |
| Date | January 2023 |
| Creators | Wang, Kunjue |
| Source Sets | Columbia University |
| Language | English |
| Detected Language | English |
| Type | Theses |
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