Product Market Peers and Relative Performance Evaluation

• 成果类型: Article
• 署名作者: Jayaraman, Sudarshan; Milbourn, Todd; Peters, Florian; Seo, Hojun
• 署名单位: University of Rochester; Washington University (WUSTL); University of Amsterdam; Purdue University System; Purdue University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2018-0284
• 发表日期: 2021
• 页码: 341-366
• 关键词: executive-compensation; strategic competition; corporate governance; ceo turnover; moral hazard; incentives; FIRMS; RISK; pay; COMPUSTAT

摘要

We investigate the role of Relative Performance Evaluation (RPE) theory in CEO pay and turnover using a product similarity-based definition of peers (Hoberg and Phillips 2016). RPE predicts that firms filter out common shocks (i.e., those affecting the firm and its peers) while evaluating CEO performance, and that the extent of filtering increases with the number of peers. Despite the intuitive appeal of the theory, previous tests of RPE find weak and inconsistent evidence, which we argue is due to the imprecise categorization of peers. Using product market peers, we find three pieces of evidence consistent with RPE in relation to CEO pay and forced turnover: (1) on average, firms partially filter out common shocks to stock returns, (2) the extent of filtering increases with the number of peers, and (3) firms completely filter out common shocks in the presence of a large number of peers.