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School of Business | Department of Finance | Finance | 2015
Thesis number: 14085
Market orientation and stock-based incentives
Author: Kylmänen, Ville
Title: Market orientation and stock-based incentives
Year: 2015  Language: eng
Department: Department of Finance
Academic subject: Finance
Index terms: rahoitus; financing; palkkiot; remuneration; kannustaminen; incentives; osakkeet; shares
Pages: 54
Key terms: stock-based incentives; pay-for-performance; market orientation
Objective of the study:

In my thesis, I study the effect of market orientation on firms' adoption of stock-based incentive compensation in Finland. I also research the nature of the relationships between market orientation and the different types of stock-based incentive schemes. The idea of the study is to contribute to the literature on stock-based compensation determinants as well as the market orientation related literature. I expect to find a positive relationship between market orientation in firms and their adoption of a stock-based incentive, given the broad consensus in agency and pay-for-performance literature that stock-based incentives support risk-taking, are well suited to incentivize the undertaking of long-term projects, and induce effort. Since market orientation has been shown to lead to increased firm performance, and is by its nature an orientation that takes time and the right resources to develop, I find it logical that firms striving for market orientation would employ stock-based compensation among their management and key personnel.


The thesis uses a novel dataset combining compensation systems and survey data to assess the research questions. The Stratmark strategic management surveys conducted by the Aalto University School of Business Marketing department in 2008, 2010 and 2012 are matched to incentive scheme data from Alexander Incentives and selected control variables, to assess my research questions pertaining to these topics in detail. My sample is comprised of 155 firm-year observations from Finnish stock-listed companies, for which concurrent survey and incentive scheme information is available.

Findings and conclusions:

I find that highly market oriented firms are in fact more likely to have in place a stock grant incentive scheme. Findings on the use of option schemes, or simultaneous use of both option and stock grants are inconclusive, but hint in the direction of a negative association with market orientation, instead of the hypothesized positive one.
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