Relative peer quality and firm performance

A-Tier

Journal: Journal of Financial Economics

Year: 2016

Volume: 122

Issue: 1

Pages: 196-219

Authors (4)

Francis, Bill (not in RePEc) Hasan, Iftekhar (Fordham University) Mani, Sureshbabu (not in RePEc) Ye, Pengfei (not in RePEc)

Score contribution per author:

1.005 = (α=2.01 / 4 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

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Abstract

We examine the performance impact of the relative quality of a Chief Executive Officer (CEO)’s compensation peers (peers to determine a CEO's overall compensation) and bonus peers (peers to determine a CEO's relative-performance-based bonus). We use the fraction of peers with greater managerial ability scores (Demerjian, Lev, and McVay, 2012) than the reporting firm to measure this CEO's relative peer quality (RPQ). We find that firms with higher RPQ earn higher stock returns and experience higher profitability growth than firms with lower RPQ. Learning among peers and the increased incentive to work harder induced by the peer-based tournament contribute to RPQ's performance effect.

Relative peer quality and firm performance

Authors (4)

Abstract

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