CEO inside-debt compensation and strategic emphasis

This study utilizes agency theory to examine how Chief Executive Officers’ (CEOs) compensation contracts impact marketing strategy decisions within firms. Specifically, we examine whether variations in CEOs’ inside-debt to equity ratio (i.e., ratio of pension and deferred compensation to equity holdings) impact the firm’s strategic emphasis. Our findings indicate that CEOs with large proportion of inside-debt (i) tend to refrain from value appropriation through reduced advertising investments, and (ii) strategically emphasize firm resources towards the value appropriation process (advertising) as opposed to value creation (R&D).