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Do Growth-Option Firms Use Less Relative Performance Evaluation?
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BibTeX
@MISC{Albuquerque_dogrowth-option,
author = {Ana Albuquerque and Rui Albuquerque and Mary Ellen Carter and Lei and Tony ) Chen and Liz Demers and Fabrizio Ferri and Andy Leone and Philip Joos and Claudine Mangen and Michael Raith and Eddie Riedl and Nathan Stuart and Joanna Wu and Tina Zamora and Jim Brickley and Krish Menon and Ross Watts and Jerry Zimmerman},
title = {Do Growth-Option Firms Use Less Relative Performance Evaluation?},
year = {}
}
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Abstract
ABSTRACT: The use of relative performance evaluation (RPE) in compensation contracts for CEOs at growth-option (GO) firms that operate in more volatile environments can provide insurance against common exogenous shocks and thus reduce the amount of risk that CEOs face. However, the implementation of RPE for high GO firms can be impaired by these firms' ability to find a peer group that captures common risk exposure. This paper studies GO firms reliance on RPE and finds that the use of RPE in CEO compensation contracts varies negatively with a firm's level of growth options. The tests use three proxies for growth options: market-to-book value of assets, research and development expenses scaled by assets, and a factor obtained from a principal component analysis. The results are robust to controlling for the impact of other firm characteristics on the pay-for-performance sensitivities.
