Do CEOs make their own luck? : relative versus absolute performance evaluation and firm risk

Karen H. Wruck (The Ohio State University), YiLin Wu (National Taiwan University)

Influenced by their compensation plans, CEOs make their own luck through decisions that affect future firm risk. After adopting a relative performance evaluation (RPE) plan, total and idiosyncratic risk are higher, and the correlation between firm and industry performance is lower. The opposite is true for firms that adopt absolute performance evaluation (APE) plans. Plans including accounting-based performance metrics and/or cash payouts have weaker risk-related incentives. The higher idiosyncratic risk associated with RPE increases a firm's exposure to downside stock return risk and lowers credit quality. Our findings are economically consistent with observed differences in firms' financial and investment policies

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Year of publication:	[2017] ; Current Draft: 10/5/17
Authors:	Wruck, Karen H. ; Wu, Yi Lin
Publisher:	[Columbus, Ohio] : The Ohio State University, Fisher College of Business, Charles A. Dice Center for Research in Financial Economics
Subject:	CEO Compensation \| Performance Measurement \| Performance Metrics \| Performance-Based Compensation \| Relative Performance Evaluation \| Absolute Performance Evaluation \| CEO Incentives \| CEO Stock Options \| Governance \| Risk \| Systematic Risk \| Idiosyncratic Risk \| Industry Index Correlation \| CEO Risk Taking \| CEO \| Führungskräfte \| Managers \| Performance-Messung \| Performance measurement \| Managervergütung \| Executive compensation \| Leistungsentgelt \| Performance pay \| Risiko \| Aktienoption \| Stock option \| Prinzipal-Agent-Theorie \| Agency theory \| Unternehmenserfolg \| Firm performance \| Risikomanagement \| Risk management \| Leistungsanreiz \| Performance incentive

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Extent:	1 Online-Ressource (circa 64 Seiten) Illustrationen
Series:	Fisher College of Business working paper series. - Columbus, Ohio : [Verlag nicht ermittelbar], ZDB-ID 2189279-9. - Vol. WP 2017, 20 Charles A. Dice Center Working Paper ; No. 2017-20 Fisher College of Business working paper series. - Columbus, Ohio : [Verlag nicht ermittelbar], ZDB-ID 2412551-9. - Vol. WP 2017-03-020
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Graue Literatur ; Non-commercial literature ; Arbeitspapier ; Working Paper
Language:	English
Other identifiers:	10.2139/ssrn.3048401 [DOI]
Classification:	d22 ; G12 - Asset Pricing ; G32 - Financing Policy; Capital and Ownership Structure ; G34 - Mergers; Acquisitions; Restructuring; Corporate Governance ; J33 - Compensation Packages; Payment Methods ; J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets ; O31 - Innovation and Invention: Processes and Incentives
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10011968863