CEO Overconfidence and Bonus Target Ratcheting

• 成果类型: Article
• 署名作者: Kim, Sunyoung; Park, Jongwon
• 署名单位: Monash University; Hong Kong Polytechnic University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2020-0461
• 发表日期: 2024
• 页码: 333-362
• 关键词: performance standards; incentive contracts; managerial traits; big 4; COMPENSATION; optimism; IMPACT; BIAS; INFORMATION; attribution

摘要

This study examines the performance target response to CEO overconfidence. Using unique hand- collected data on the annual bonus targets of Standard & Poor's (S&P) 1500 firms, we find that boards ratchet targets more aggressively and apply greater ratcheting asymmetry for overconfident CEOs than for non-overconfident CEOs. These findings are robust to a battery of sensitivity tests. We also provide evidence that the increase in target ratcheting for overconfident CEOs is particularly more pronounced in firms with strong monitoring environments. Collectively, our findings suggest that boards actively consider CEOs' overconfidence when setting performance targets, providing new insight into the importance of CEOs' personal traits with respect to the incentive effects of performance target revisions.