The Effect of Local Tournament Incentives on Firms' Performance, Risk-Taking Decisions, and Financial Reporting Decisions

• 成果类型: Article
• 署名作者: Ma, Matthew; Pan, Jing; Stubben, Stephen R.
• 署名单位: Southern Methodist University; Utah System of Higher Education; University of Utah
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-52506
• 发表日期: 2020
• 页码: 283-309
• 关键词: rank-order tournaments; equity incentives; earnings management; ceo turnover; corporate; MARKET; pay; COMPENSATION; STOCK; OWNERSHIP

摘要

This study documents the existence of local employment preferences for corporate executives and examines how the compensation of executives' local peers affects their own performance, risk-taking decisions, and financial reporting decisions. We find that external hires of new CEOs (CFOs) are five (eight) times more likely to be from local firms than non-local firms. We also find that local tournament incentives-as proxied by the pay gap between an executive and higher-paid executives in the area-are associated with stronger performance, greater risk taking, and more financial misreporting. We find consistent results using a difference-in-differences analysis that exploits plausibly exogenous variation in local tournament incentives caused by the sudden death of a local CEO. Our findings are consistent with executives taking actions to compete for a promotion to a nearby firm with higher pay.