Rocking the boat: How relative performance evaluation affects corporate risk taking

• 成果类型: Article
• 署名作者: Truc Do; Zhang, Huai; Zuo, Luo
• 署名单位: University of Queensland; Nanyang Technological University; Cornell University
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2021.101425
• 发表日期: 2022
• 关键词: rank-order tournaments; executive-compensation; managerial incentives; earnings management; capital-markets; moral hazard; provision; FIRMS; pay

摘要

We argue that relative performance evaluation (RPE) contracts introduce a tournament among the focal firm and peer firms. We test whether a firm's riskiness is altered by its CEO's incentive to win the tournament. We find that a firm that performed poorly relative to its peers during an interim period takes more risk in the remainder of the evaluation period than a firm with better interim performance. This effect is stronger when the interim assessment date is closer to the end of the evaluation period and when winning the competition is more important to the CEO. Together, our results suggest that RPE contracts create tournament incentives for CEOs and significantly affect corporate risk taking. 0 2021 Elsevier B.V. All rights reserved.