Financial Reporting Comparability and Accounting-Based Relative Performance Evaluation in the Design of CEO Cash Compensation Contracts

• 成果类型: Article
• 署名作者: Nam, Jonathan
• 署名单位: Hong Kong Polytechnic University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-52588
• 发表日期: 2020
• 页码: 343-370
• 关键词: investment opportunity set; executive-compensation; statement comparability; empirical-analysis; moral hazard; INFORMATION; turnover; earnings; RISK; incentives

摘要

This study examines how cross-firm differences in financial reporting practices affect how peer-firm accounting information is used to evaluate CEO performance. I propose that efficient relative evaluation using accounting performance requires peer firms to have comparable financial reporting systems, allowing boards to reduce the information processing costs associated with differences in firms' financial reporting practices. Supporting this view, when peer selection takes financial reporting comparability into account, I find evidence that the earnings of peer firms with high financial reporting comparability serve as a performance benchmark for determining CEOs' cash compensation. My paper empirically corroborates the substantial anecdotal evidence of the use of peer firms' accounting performance as a significant element in boards' evaluation of CEO performance.