STOCK-BASED INCENTIVES AND INVESTMENT DECISIONS - A COMMENT

Bizjak, Brickley, and Coles (1993) study how asymmetric information af fects investment decisions when firms use stock-based compensation. A model is developed where suboptimal investment results from compensati on plans overemphasizing current stock return. Empirical results show that companies with higher information asymmetries have CEO compensati on emphasizing equity ownership relative to salary and bonus incentive s. Surprisingly, they also show that CEO compensation in firms with hi gher information asymmetries is more weakly associated with stock perf ormance than compensation in lower asymmetry firms. In my comments, I identify concerns about the model, the empirical tests, and the relati on between the two.